At first glance, the new proposed anti-avoidance provisions appear very complex. We will provide further details once we have fully analysed them and discussed the impact with Government.
Anti-avoidance legislation - distributions
The aim of this anti-avoidance is to counter the use of Jersey companies for tax avoidance in light of the abolition of the deemed distribution and attribution rules. This is achieved by extending the definition of distributions to capture tax adjusted profits however derived.
The draft legislation is complex and an initial review suggests it will be difficult for the average ‘man on the street’ to understand and apply the rules. It will now be even more important for there to be a full audit trail demonstrating the profits out of which dividends are paid to ensure capital profits, repayments of share capital and loan repayments are not caught.
The rules are only to apply to shareholders owning over 2% of the ordinary shares. The new legislation will need to stand up to scrutiny by the EU Code of Conduct Group.
Anti-avoidance legislation concerning intermediate service vehicles (personal service companies)
Although a general anti-avoidance rule exists, it is felt that specific legislation is needed to ensure individuals employed through a personal service company who are effectively acting as employees are not able to obtain beneficial tax treatment compared to those directly employed.
The proposed anti-avoidance seeks to look through the company to subject the “employment income” concerned to income tax via the ITIS system. This legislation will not apply if the company’s client income is less than £45,000.
Benefit in kind exemption for directors
Employees who have control of companies are not taxed on benefits in kind provided to them or their families where no tax deduction is claimed by the company paying them. This creates a tax advantage where companies are subject to 0%/10% tax. This exemption will now only apply to accommodation benefits in kind.
Amendment of group relief provisions
It is proposed to eliminate an unintended result of the current legislation, which allows losses arising in a 0% company to be offset against certain profits of a group company subject to tax at 20%, i.e Jersey property income.
Increase of income tax exemptions by 3% and retention of income tax allowances at current levels
The proposed 3% increase in tax exemption thresholds is in line with the increase in inflation for the year to June 2012.
Alignment of GST treatment on share transfers for domestic property with that for directly owned domestic property
An amendment is proposed to align the GST treatment of properties sold directly (GST zero rated) with the treatment of properties sold by way of share transfer (exempt from GST), to make the latter also zero rated.
Extend relief for first time buyers until 31 December 2013
It is proposed to extend to 31 December 2013, the reduced rate of stamp duty and land transaction tax charged to first time buyers of properties.
Reintroduction of cap on probate duty
From 1 January 2013, to enhance Jersey’s competitiveness, it is intended to reintroduce a cap of £100,000 on the amount of probate duty payable on an estate where the net value exceeds £13,360,000. Currently probate duty is payable on the entire value of an estate.
A Green Paper will be launched on the international services entity (“ISE”) regime. The Green Paper will look at ways of improving the transparency and fairness of fees charged, particularly with regard to the trust and company administration sector and their clients.
A White Paper will be published concerning the collection of data that sets out to improve the way the Government collects and analyses information on the profits of Jersey companies. The purpose is to ensure the Government has sufficient information to support future policy changes and protect the company tax regime.
The Government will shortly issue a report on the conclusions of their review of raising revenues from non-financial services companies.
If you think you may be affected by any of these proposals or would like to discuss them, please do not hesitate to contact your usual PwC Tax contact or call Wendy Dorman or one of the members of our Budget working party whose details appear alongside.
Please click here to view the Draft Budget Statement 2013 document released by the Government.