According to a statement released late yesterday by Guernsey Finance, despite Guernsey arguing the offending element is different to that of Jersey and the Isle of Man, which both had their respective tax regimes deemed harmful last year, and is in fact compliant, the Code of Conduct Group ruled against the regime.
Guernsey’s Policy Council said: “Whilst accepting the operation and timing of Guernsey’s deemed distribution regime differed to that of Jersey and the Isle of Man, the European Union’s Code of Conduct Group on Business Taxation this week determined that its de facto effect was the same – and thus harmful.
“We expect to be formally notified of this conclusion shortly and provided a detailed explanation of the European Commission’s technical assessment of the deemed distribution regime in due course. Once we have received detail of the assessment and the substance of the Code Group’s discussion, Ministers will be able to meet to discuss what actions are appropriate to recommend to the next Policy Council and States [of Guernsey, the Island’s parliament].”
Under Guernsey’s zero-10 regime, all companies are taxed at 0%, except for the profits of specified banking activities which are taxed at 10% (and local utilities at 20%). However, Guernsey resident shareholders are taxed at 20% of profits from either actual or deemed distributions, where the latter include dividends, disposal of shares, migrations, liquidations and investment income.
Guernsey Finance said it “now looks certain that Guernsey will follow Jersey and the Isle of Man in removing deemed distribution as a way to retain the zero-10 regime as a whole”. Guernsey also has a tax exempt regime for collective investment schemes and it is expected that later this year it will be extended further to apply to any vehicle which is part of a fund structure.
