Guernsey zero-10 tax regime 'deemed harmful'

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Guernsey's zero-10 tax regime has been deemed harmful by European Union officials.

The EU Code of Conduct Group on Business Tax made similar rulings on the systems in Jersey and the Isle of Man last year.

After changes were made both systems were approved in December.

Guernsey's Treasury Minister Charles Parkinson said changing the tax regime "needed to be right this time and would be the first job of the new States".

Zero-10 Timeline

  • May 2007 - States agree to introduce a zero-10 tax, something already in place in Jersey and the Isle of Man
  • Jan 2008 - Zero-10 corporate tax was introduced in Guernsey
  • Oct 2009 - UK Treasury raises concerns and Guernsey agrees to a review
  • May 2010 - EU suspends review of Guernsey's strategy
  • Dec 2010 - Jersey and the Isle of Man's regimes have harmful effects, rules the EU
  • Sep 2011 - EU finds Jersey and the Isle of Man's tax regimes will be compliant as long as deemed distribution was removed
  • Oct 2011 - EU restarts review into Guernsey's tax regime
  • Dec 2011 - Changes to the Isle of Man and Jersey tax systems are approved by the EU

The main change to the current system, which was introduced in 2008 and under which some companies pay no tax, is expected to be the removal of deemed distribution.

It means residents who are shareholders of island companies pay personal income tax on any unallocated company profits, while anyone living off-island does not.

Deputy Parkinson, who is standing down from the States on 30 April, said: "That would result in an increase in our deficit and we would probably have to take other corporate tax measures to compensate.

"Those are likely to be widened the 10% band, but to what extent we widen it remains to be decided."

He said: "The best outcome for Guernsey is that we end up with a competitive, but fair, and long-lasting tax regime."

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