At last Thursday’s meeting, the results of which were not known until today, the
EU’s Code of Conduct Group said it intended to stick to its original view, arrived at in November, that these regimes were not compatible with the European Union’s code on business taxation.
It is to forward this decision to the full Council of Economics and Finance Ministers (ECOFIN), which meets next in June.
Wendy Martin, director of international tax in Jersey’s chief minister’s department, said she remained optimistic that the Code Group ultimately would agree that doing away with the deemed distribution and attribution rules that it objected to would make the zero-10 regimes of Jersey and the Isle of Man acceptable.
According to Martin, the Code of Conduct Group simply “did not have time” last week to consider the changes the Isle of Man and Jersey promised to implement in order to make their zero-10 regimes meet the EU’s standards, as the islands’ proposals came only a few days before the full Code Group was due to meet, and some weeks after a high level working party had already examined the existing tax regimes of both islands and found them non-compliant.
“What they did last week was to reaffirm that the existing [zero-10] tax regimes are harmful,” Martin said.
“They haven’t had a chance yet to consider whether getting rid of the deemed distribution system would make them acceptable." She said Jersey officials planned to continue to make their case to the Code Group over the next few weeks and months, ahead of the June ECOFIN meeting.
Martin noted that in 2003, before the deemed distribution and attribution elements were added, the Code Group had examined the zero-10 schemes of all three islands to be compliant.
Guernsey, which also has a zero-10 corporate tax rate at the moment, is in the process of conducting a review, the results of which are expected to be released later this year. Its zero-10 regime had not been singled out by the Code of Conduct Group because the island had already said it was planning to review it in favour of a possible flat 10% tax.
As reported, both Jersey and the Isle of Man announced earlier this month that they would remove a feature of both islands’ tax regimes which enabled the governments to “deem” (in the case of Jersey) and “attribute” (in the case of the IoM) to individuals a certain amount of income from the profits of any island businesses they own.
It was this type of tax, which Jersey and the IoM said were designed to keep people from delaying the receipt of dividends in order to defer their tax liabilities, that both islands agreed to abolish, even though it would reduce their tax take in the short run.
