© The Financial Times Ltd 2013 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
October 21, 2009 3:00 am
Jersey and Guernsey are planning to move quickly to allay uncertainty over their corporate tax regimes in the wake of a recent warning that they conflicted with the "spirit" of European Union rules on harmful tax competition.
Objections by some EU member states to the islands' tax systems, under which many companies pay zero corporation tax, were conveyed to them last week by Stephen Timms, Treasury minister. The move may be the start of a new phase in the assault on tax havens that until now has focused on bank secrecy .
Peter Niven, chief executive of Guernsey Finance, which promotes the financial sector, said he was "acutely aware" that businesses required certainty. Jersey Finance said any changes to the regime would take three to five years to implement.
Jersey and Guernsey had already pledged to work together to review their fiscal systems in an effort to address their deficits. Jersey is forecasting a £50m Budget deficit for 2010, while Guernsey said earlier this year that its structural deficit was set to increase to £60m-£65m a year.
The realisation that the tax system may be unsustainable has caused alarm among some islanders who fear they will have to pick up the bill for new tax concessions for businesses.
In an effort to address a shortfall in its public finances, Jersey introduced a 3 per cent goods and services tax in May last year.
But there is a strong chance the review will conclude that the zero tax rate for companies should be abolished, albeit with exceptions for some key sectors.
Another possibility is the adoption of a "territorial" tax that would not tax income generated outside the islands, a move based on the tax systems used in Singapore and Hong Kong.
The imposition of corporate tax would be likely to chase away certain types of business. Tax "neutrality" is viewed as crucial to certain sorts of transaction involving corporate vehicles. David Jervis, partner at Eversheds, a law firm, said: "Any changes to the regimes are likely to reduce the competitiveness of Jersey, Guernsey and the Isle of Man compared to tax havens elsewhere that have not been forced to adopt similar rules."
But some types of business might be relatively unaffected. Louise Somerset of RBC Wealth Management said a decision to impose a low rate of corporate tax would be unlikely to have a big impact on private clients, citing other successful financial centres such as Malta and Cyprus that already impose corporation tax.
The imposition of corporate tax might also open up the opportunity to negotiate double tax agreements, which tax havens are traditionally denied.
Copyright The Financial Times Limited 2013. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.