Financial discipline and planning: both are absolutely essential for a government and whilst unlikely to capture popular imagination, neither can be taken for granted
In order to retain the real value of the tax caps, it has been proposed that they are increased to £130,000 (non-Guernsey source income) and £260,000 (worldwide income) respectively, with effect from 1 January 2019.
It has also been proposed that income from land and buildings in Guernsey will not be excluded from the cap, when the income is derived from an exempt body.
Increase in personal allowances by another £500 to £11,000 for individuals with an additional age related allowance of £450 for individuals over the age of 64.
Withdrawal of Personal Income Tax Allowances and supplementary allowances for higher earners (higher earners will be those earning in excess of £100,000), however the withdrawal ratio is being reduced from 1:3 to 1:5.
In real terms, this means that, for every £5 earned over £100,000, £1 worth of allowances will be withdrawn, up to the newly imposed, increased allowance of £11,000.
This Budget is positive: it reflects the renewed strength in our economy and public finances; and it is the reward for planning and fiscal discipline enabling focused investment in priority service areas and initiatives
Extension of the 10% income tax rates to:
After some confusion surrounding the “tie-breaker” in the UK-Guernsey DTA and how it interacts with anti-avoidance measures, it has been recommended that the Income Tax Law is amended to make it explicit that with effect from 1 January 2019, a company which is treated as non-resident under the terms of a double taxation arrangement with a country or territory where the highest rate at which any company may be charged to tax is 10% or higher will not be considered tax resident in Guernsey for domestic tax purposes. It also recommends any consequential amendments to the anti-avoidance provisions of the Income Tax Law are made.
Further, it is recommended that the Income Tax Law be amended such that relief for the underlying tax suffered by a company flows through to the beneficial member on distribution, if the company is either incorporated or controlled in Guernsey.
Further to the Consultation on the Introduction of Substance Requirements in August 2018, draft legislation was provided to the COCG on 21 September 2018. The reasonable expectation is that following adoption of these proposals, the recommendation of the COCG to ECOFIN will be that Guernsey has satisfactorily implemented its commitments and should accordingly be removed from Annex II by February 2019.
It is proposed that the Income Tax (Guernsey) Law, 1975 is amended to provide the ability for the Policy & Resources Committee to make Regulations requiring companies carrying on or undertaking relevant and other specified activities to have a substantive presence in Guernsey by meeting ‘substance requirements’.
These proposals will require companies that are tax resident in Guernsey and engaged in key activities identified by the EU to demonstrate as part of their annual tax return for accounting periods commencing after 31 December 2018 that they meet minimum substance requirements.
The requirements will be determined via the core income generating activities (CIGA) undertaken in Guernsey by virtue of the industry in which the company operates (e.g. banking, fund management, fiduciary services). The substance requirements will vary for each key activity to reflect the different needs of the companies involved and the risk exposure, and will be aligned to international standards identified by the FHTP.
Outsourcing of CIGA to another entity within Guernsey will be permitted in line with the approach agreed by the FHTP, however, companies will need to ensure that they are able to demonstrate adequate supervision of the outsourced activity.
An anti-avoidance provision will be introduced to ensure that outsourcing cannot undermine the principles and purpose of the regime, to ensure that Guernsey does not facilitate structures or arrangements aimed at attracting profits which do not reflect real economic activity within the jurisdiction. This will ensure that outsourcing could not be used to circumvent the substance requirement.
It is also proposed that a commitment is given to introduce legislation for mandatory disclosure rules by 31 December 2019 (the timescale that countries within the EU are working towards) aligned to the OECD work on mandatory disclosure rules for CRS Avoidance Arrangements and Opaque Offshore Structures.
Currently the Disclosure (Bailiwick of Guernsey) Law 2007, enables the Director of Income Tax to make disclosure of information to the GFSC, however there is no reciprocal agreement. It is proposed to amend this Law to introduce such a framework.
This amendment will allow the GFSC and Director of Income Tax to communicate on the incoming substance requirements.
It is recommended that domestic and land tariffs are increased by 10%.
It is recommended that the TRP on commercial properties is increased by 5%, with the introduction of two new commercial property categories, entitled:
It is recommended that a Brexit Transition Fund is immediately established within the General Reserve with an allocation of £3million and to delegate authority to the Policy & Resources Committee to approve use of this Fund, in anticipation of the uncertainty surrounding the UK leaving the EU on 29 March 2019.
Tax Director, PwC Channel Islands
Tel: +44 7781 138617
Senior Tax Manager, PwC Channel Islands
Tel: +44 7911 763718