In a statement issued this morning, Guernsey Finance, the marketing arm of Guernsey’s financial services industry, said the EU Code of Conduct Group on Business Taxation had formally agreed that Guernsey’s recent decision to repeal certain so-called deemed distribution provisions in its individual tax code, beginning 1 Jan 2013, had “removed the ‘harmful effects’ of the island’s corporate tax regime”.
The only remaining hurdle, the statement noted, was a need for the Code Group’s ruling to be formally ratified by the EU’s Economic and Financial Affairs Council (ECOFIN) at the end of this year.
Zero-10 regimes vary slightly between jurisdictions, but like most, Guernsey’s version provides for all companies to be taxed at 0%, except for certain financial services businesses, the profits of which are taxed at 10%. Local utilities in Guernsey pay 20%, while collective investment schemes – which comprise a significant component of Guernsey’s economy – are provided for under a separate, tax-exempt regime.
States of Guernsey representatives voted in June to repeal the island’s deemed distribution provisions, following in the footsteps of similar moves last year by Jersey and the Isle of Man – the other two of Britain’s three Crown Dependencies.
All three jurisdictions did so in response to concerns that came to light after the Code Group began reviewing their zero-10 schemes in 2010, after questions first began to be raised in Europe in 2009. The Isle of Man was the first of the Crown Dependencies to introduce zero-10, which it did in April 2006.
Deemed distribution rules are anti-avoidance provisions under which, in certain circumstances, island residents are deemed to have received a dividend from a profit-making island company in which they own shares, whether they actually have or not. Such “distributions” are then taxed as income, which is why eliminating them may result in less tax coming in to the government.
“Obviously this is subject to the standard ratification process but I am pleased that the EU Code Group confirmed yesterday that the repeal of our deemed distribution regime does indeed, as we expected, ensure our corporate tax regime conforms to the EU Code of Conduct,” Guernsey Chief Minister Peter Harwood said.
Guernsey Finance chief executive Fiona Le Poidevin added: “The deemed distribution provisions primarily affect locally resident shareholders, and therefore it is very much a case of business as usual for the international client base of our finance industry.”
