Colin Powell, adviser to the States of Jersey on international affairs, and Wendy Martin, director of international taxation in Jersey, were among those who attended the working group level meeting. In a statement, Powell noted it was the first time the code group had received representations from non-EU entities.
He described the purpose of the meeting as to give EU member state representatives an opportunity to ask technical questions about zero-10 of those who have such regimes in place, “to ensure they understand [it], and the relevance for the Code of our personal tax anti-avoidance rules”, Jersey’s so-called deemed distribution and attribution rules.
Under these rules, Jersey residents pay tax on some income they are "deemed" to have received from companies in which they have an interest, which is seen as a way of preventing personal tax avoidance by individuals.
The Code of Conduct Group will address whether these deemed distribution and attribution rules require further consideration at its next meeting in November, Powell added.
Isle of Man Treasury’s chief financial officer Mark Shimmin and assessor of income tax Malcolm Couch also appeared before the Code of Conduct Group, and like the Jersey delegation, answered technical questions having to do with that island’s zero-10 scheme.
In a statement today, IoM treasury minister Anne Craine observed that yesterday was the island’s first chance to represent itself before the code group even though its involvement with it "dates back to 2002".
"No decisions by the group were expected or made at the meeting this week," she added. "It is an ongoing process, to which the Isle of Man government continues to respond positively and constructively."
Zero percent corporation tax
Under zero-10, most businesses pay no corporation tax, while some industries, such as banks, pay 10%, and a few pay 20%.
As reported, offshore industry officials believe that the full Ecofin Council is unlikely to consider the Code of Conduct Group’s recommendation on the subject of zero-10 tax regimes until its next meeting in December. At that point, if the council were to declare zero-10 regimes non-compliant with the EU’s Code of Conduct on Business Taxation, it is expected those jurisdictions which have them would be given a year or two to replace them.
The Code of Conduct Group on Business Taxation is comprised of representatives of all 27 EU member states, whose tax codes it monitors to ensure that they comply with Council of Economics and Finance (Ecofin) parameters set out 13 years ago. The Code is not legally binding, but it has political significance both within the EU as well as outside of it.
For such non-EU jurisdictions as Jersey, Guernsey and the Isle of Man, compliance with such codes is considered important now that such offshore financial centres are being scrutinised like never before by the likes of Britain, the US and Europe.
Unpopular in Europe
Zero-10 regimes are unpopular in Europe, where some higher-tax European member states regard them as predatory. However, they are a major element in the incentive package offshore jurisdictions use to lure businesses to their shores.
The zero-10 concept was actually conceived in response to concerns by the Code of Conduct Group over other tax codes, such as 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.
The Isle of Man was the first of the three crown dependencies to introduce a zero-10 regime in April 2006, and it was initially examined by the Code of Conduct Group and found to be sound.
Guernsey and Jersey subsequently adopted their own versions of zero-10 in 2008 and 2009 respectively.
The recent financial crisis has changed attitudes towards taxation, however, with 0% tax increasingly being regarded as unacceptable by tax officials in certain large industrialised countries.
Recent debate in some of the crown dependencies, meanwhile, has focused on whether moving to a flat 10% corporate tax rate might not actually be better for the islands’ economies generally – if not for some of their smaller, locally-based corporate services providers in particular – because it would mean that large companies based elsewhere would have to pay tax on their locally-derived profits. Currently they pay tax on these profits in the countries in which they are based.
For example, a supermarket chain like Marks & Spencer, with stores on the Isle of Man, Jersey and Guernsey, would pay tax on all of its Isle of Man, Jersey and Guernsey profits in the UK.
