Impact of Fiscal Strategy Reviews on the 0/10 corporate tax regimes

You may be aware that the business tax system in Jersey has been under review by the EU Code of Conduct and High Level Working Party. In addition, Guernsey has launched a public consultation to undertake a review of its corporate tax system. This has arisen because it is apparent that a number of EU countries have expressed doubts about the 0/10 tax regimes introduced in Guernsey in 2008 and in Jersey in 2009 on the grounds that they are not within the spirit of the EU Code of Conduct on Taxation.

Both Islands are committed to being well regulated, respected and tax transparent jurisdictions and the 0/10 reforms were originally introduced in response to the EU Code of Conduct working group's review of harmful tax practices in the EU and its dependent territories. Guernsey and Jersey committed to abolishing the International Business Company/ International Company and Exempt Company structures which allowed companies owned by non-residents to pay low or no tax on their profits. Guernsey continues to permit collective investment schemes to claim exempt status, and Jersey has re-introduced this into its law from 2010. In order to protect the financial services industry, both Islands took the decision to reduce the general rate of corporate income tax to 0%, with a limited number of companies paying at 10% or 20% on income derived from certain specified activities, including but not limited to, banking activities and income derived from real property situated on the Islands.

Following the review in Jersey, concerns over deemed distribution and attribution rules were raised by the EU and the decision has been taken to remove these provisions with effect from January 2012. It is possible new provisions may be introduced to cover the transitional period, however no changes are expected to be made to the company income tax rates. In particular it is intended that collective investment schemes will not be affected by any changes.

In Guernsey, no decision has been taken to remove the deemed distribution rules which attribute tax to local shareholders. It is possible that the rules will remain in place until such time as a decision is reached on whether to amend the overall current regime, or not, as the case may be.

Both Islands have been working with the other Crown Dependency, namely the Isle of Man, which is, like Jersey, also subject to the review, as well as with HM Treasury and the EU Code of Conduct Group to determine the terms of the corporate tax regime review. It has been publicly indicated that some form of territorial tax regime may be the most likely outcome but there has been no confirmation of this to date.  Full and proper consideration of any new corporate tax regime is unlikely to allow commencement prior to late 2013/early 2014.

The review is intended to be fiscally neutral.  

Should you have any questions or concerns you wish to discuss, please use the contact details on this page to speak to one of our tax team leaders.

We will keep you updated with the progress of the review processes and outcomes in the weeks and months to come.