Under zero-10 regimes, most businesses pay no corporation tax, while some industries, such as banks, pay 10% and a few pay 20%.
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.
Today’s announcements by the Isle of Man and Jersey come ahead of Thursday’s scheduled meeting of the EU Code of Conduct Group, at which the matter of their zero-10 tax regimes was due to be addressed.
In a statement this morning, Jersey’s Council of Ministers said Jersey would “maintain its zero-10 tax regime”, while removing the problematic deemed distribution and attribution rules from 1 Jan 2012.
Said chief minister Terry Le Sueur: "this action allows us to retain our corporate tax regime, while meeting the concerns of the EU.
"Maintaining tax neutrality in a simple and transparent way provides stability and certainty for businesses operating here, and sends a clear signal that Jersey continues to provide a competitive tax system which will safeguard the island’s future economic well-being.”
A similar statement was issued on the Isle of Man by treasury minister Anne Craine, who said the island would withdraw its so-called attribution regime for individuals, or ARI, from 6 April 2012.
In her annual budget speech, Craine told Tynwald that the ARI, which like Jersey’s deemed distribution and attribution rules is a tax anti-avoidance mechanism, was likely to be declared harmful under the EU’s Business Taxation Code of Conduct. As a result, removing the ARI should end such concerns, she said.
Noting that the Code of Conduct group had concluded back in 2003 that zero-10 systems were not harmful, Craine said: "the Isle of Man Government considers that with the removal of the ARI, our business taxation system does not have features which can be considered to be harmful under the Code of Conduct provisions".
Revenue implications
The scrapping of the deemed distribution and attribution rules will pose some problems for the two islands’ tax authorities, because it will now be easier for people who have a stake in island companies to delay the receipt of dividends in order to defer their tax liabilities.
However, Jersey’s Treasury is forecasting that it will "create a temporary cash flow issue rather than a reduction in the total tax take", according to the Council of Ministers statement.
"We believe the issue will be one of timing," another statement issued today by the States of Jersey on the matter said.
"Also, this effect will not be felt until 2013/2014. The maximum cash flow (or timing) impact is not expected to be more than £10m in any one year.
"We will, of course, monitor the situation very closely and if we find that there is abuse of this situation we will take steps to deal with it."
Guernsey in wait and see mode
Guernsey’s zero-10 tax regime had not been singled out by the EU Code of Conduct Group because the island had already expressed an interest in reviewing it in favour of a possible flat 10% tax. Today, a States of Guernsey Policy Council spokesman said it was too soon to comment on the specifics of Jersey and the IoM’s announcements, but added that they "will be analysed so that they can be taken into account for inclusion in the Green Paper due to be published later this year".
He added: "Guernsey has not been subject to a review by the Code Group, and our five key objectives to meet when deciding on any revision of its corporate tax regime remain: [to] be competitive; internationally acceptable; sustain Guernsey’s economy; be based on a simple, solid rationale and [to] give rise to reciprocal benefits."
