Guernsey has
suffered the third blow to its international finance business in a matter of
weeks. First came the removal of the Low
Value Consignment Relief for imports to the UK from the Channel Islands, then
came the de-listing of the vast majority of the Islands’ QROPs, and now the EU Code
of Conduct Group on Business Tax has ruled that Guernsey's zero-10 tax regime is
harmful.
The EU made similar
rulings on the systems in Jersey and the Isle of Man last year, but after
changes were made to the deemed distribution provisions in both Islands’ systems,
they were approved in December 2011. Guernsey
will now have to make similar amendments, but there will be some frustration from
within the Island’s finance industry that the Island is now subject to a
further period of uncertainty and delay, whereas if it had taken the same
course as Jersey and the Isle of Man last year, the matter could have been
resolved far sooner. The Island had felt
that the operation of its own deemed distribution provisions were sufficiently
different to those of Jersey and the Isle of Man that it might succeed where
they failed, but it turns out that this was a forlorn hope – something which
had been predicted by a number of commentators.
There is no reason
to believe that Guernsey cannot or will not make the necessary changes and
eventually get the approval of the EU authorities, but uncertainty regarding
taxation is something which clients strongly dislike, and it may discourage the
establishment of business in the Island in the meantime.
Guernsey Treasury
and Resources Minister Deputy Parkinson, said that the changes that the Island
will need to make to comply with the Code of Conduct Group’s criteria "...would result in an increase in our deficit
and we would probably have to take other corporate tax measures to compensate.” Estimates have put the cost of complying with
the criteria at around £10 million, which will be a significant blow to an
Island still calculating the cost of the LVCR and QROPs losses.
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