The Conduct Group reviewed the two Crown Dependencies’ tax regimes last year, as it was believed both jurisdictions’ personal taxation laws, when combined with the zero-10 tax regime, were in conflict with Ecofins’ Code of Conduct on Business Taxation.
Guernsey, which also uses the zero-10 regime, was excluded from the review after it made a commitment to undertake a formal reassessment of its corporate tax system, with a view to possibly scrapping the zero-10 rule entirely and implementing a flat 10% rate of tax. The island is due to release a Green Paper setting out possible alternatives in the early summer.
In November, the Code Group indicated that Jersey’s deemed distribution rule, when combined with the zero-10 regime, may be in conflict with Ecofin’s code of conduct on business taxation.
The deemed distribution rule refers to anti-avoidance provisions in Jersey’s personal tax code under which, in certain circumstances, Jersey residents are deemed to have received a dividend from a profit-making Jersey company in which they own shares, whether they actually have or not. Such ‘distributions’ are then taxed as income. The Isle of Man’s regime works similarly.
This week’s statement from the EU Council’s High Level Working party confirms both jurisdictions will have to amend their existing tax regimes.
The Code Group will now meet on the 17 February to formally assess Jersey and the Isle of Man’s Tax regimes.
Jersey Treasury and Resources Minister Senator Philip Ozouf said: “We are pleased that we now have clarity and that this conclusion has confirmed our expectations.
“Over the coming weeks we will be considering all of the appropriate options for Jersey and will announce a course of action once this process is complete.”
A statement from the Isle of Man government said it too had received confirmation the zero-10 regime, when combined with the attribution regime for individuals rule, gives rise to “harmful effects”. It did not indicate what action would be taken with regards to this.
