The decision, which came yesterday during a meeting in Brussels attended by Jersey and Isle of Man officials, brings the two islands, and possibly also Guernsey, a step closer to keeping the basic zero-10 corporate tax arrangements.
Under zero-10 regimes, most businesses pay no corporation tax, while some industries, such as banks, pay 10% and a few pay 20%. Some countries with much higher rates of corporation tax regard zero-10 schemes as predatory, and would like to see them replaced.
The Conduct Group reviewed both Crown Dependencies’ tax regimes last year, and earlier this year, declared that both jurisdictions’ personal taxation laws, when combined with the zero-10 tax regime, were in conflict with Ecofins’ Code of Conduct on Business Taxation.
The matter of Jersey and the Isle of Man’s zero-10 regimes next goes to the Europe’s Council of Economics and Finance (Ecofin) in December for a final ruling, at which the Ecofin ministers are expected to consider the Conduct Group’s recommendation.
“This is excellent news for Jersey, and vindicates the consistent stance maintained by the treasury minister and myself over a long period,” Jersey chief minister Sen Terry Le Sueur said in a statement.
Isle of Man treasurer Anne Craine called the Code Group’s decision "a positive development" as well as "an endorsement of Government’s strategy of responsible engagement with international concerns, while promoting the Island’s legitimate interests".
At issue in Jersey was what was known as the "deemed distribution rule", an anti-avoidance provision in Jersey’s personal tax code under which, in certain circumstances, Jersey residents were deemed to have received a dividend from a profit-making Jersey company in which they owned shares, whether they actually had or not. Such ‘distributions’ were then taxed as income.
The Isle of Man’s anti-avoidance regime is similar, but unlike Jersey, the IoM has not yet implemented the changes proposed to meet the Code Group’s concerns, pending further clarification.
Guernsey tax seen ‘similar’
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 towards possibly scrapping the zero-10 rule entirely and implementing a flat 10% rate of tax.
But today, in light of the code group’s decision, Guernsey chief minister deputy Lyndon Trott said that although he was not in a position to pre-empt the outcome of the island’s own review of its tax regime, which currently continues, the Code Group’s stance “does significantly reduce the likelihood that substantial changes to Guernsey’s corporate tax regime will be required”.
"I have consistently said that the most likely outcome is that Guernsey and Jersey end up with very similar corporate tax regimes," he added.