Last week lawmakers in Guernsey decided not to accept a territorial corporate tax rate. A senior lawyer has argued that the island's financial sector wouldn't have been negatively affected had the proposal become law.

Lawmakers in Guernsey last week voted against introducing a form of territorial-based corporate income tax at a rate of between 10 per cent and 15 per cent, which advocates said would put the island on a par with financial hubs such as Luxembourg, Malta, Singapore and Zurich.

On 18 October, legislators voted 29 to 11 against the idea, according to an official report of votes in the Policy & Resources Committee. Members had also rejected a similar move in January this year.

The text of the proposal, published by the Guernsey legislator, said: “The introduction of a territorial corporate income tax with a general rate of 10 per cent to 15 per cent would bring Guernsey into line with the major offshore finance centres, including Curaçao, Cyprus, Dubai, Dublin, Geneva, Gibraltar, Hong Kong, Luxembourg, Malta, Singapore and Zurich.”

James Quarmby, partner, private wealth and tax, Stephenson Harwood, said adopting such a measure would have been a welcome step and the impact on Guernsey’s financial services sector would have been minimal. 

“I have argued publicly in Guernsey before…that the island should consider introducing corporation tax at the rate of 13 per cent, but on a territorial basis,” Quarmby said on his LinkedIn page. (He later confirmed this view when asked about it by WealthBriefing.)

“The 13 per cent was to match Ireland and the territorial was to match Hong Kong. This would enable Guernsey to say that they have ditched the zero-tax CT regime, but with the result that most Guernsey companies would still pay no tax because the source of the profits would be outside the territory. This time the proposal was defeated, but not by as much as I thought it would be. In my view it was a sensible proposal and one which would not damage the trust and company services industry as the vast majority of companies would continue to pay no tax,” he added. (This news service has interviewed Quarmby about the UK's non-dom system.)

When the measure was first floated in January, deputy CNK Parkinson said the plan would “put our economy on a more sensible footing and encourage growth” (source: BBC, 28 January). Contesting this argument, Neil Inder, president of economic development in the island, was quoted saying that the plans would “scare the island’s finance industry off”; they also drew opposition from the Guernsey International Business Association and the Institute of Directors.

The way that firms choose specific locations, such as low-tax ones, as domiciles for reporting purposes has been part of a wider form of “tax competition” that has provoked ire from countries worried about the “leakage” of revenue. In the autumn of 2021, a group of 20 major industrialised nations agreed a minimum corporate tax rate of 15 per cent, designed – so its framers hoped – to stop a “race to the bottom” over such tax. The move was prompted by President Joe Biden. Until the 2017 tax package of his predecessor, Donald Trump, the US had one of the highest corporate tax rates in the G20, far above those of countries such as Ireland or Luxembourg, for example. Offshore and onshore centres are under the spotlight. For years, for example, Ireland’s corporate rate has been as low as 12 per cent – to the anger of fellow European Union member states.