Guernsey may yet defy EU pressure
14 October 2010
Guernsey is reaching a critical point in its
jousting with the European Union over its allegedly harmful
zero-ten corporate tax regime.
In a review published on the Guernsey Finance
website, Graham Parrott, a tax partner at Ernst & Young, notes
that the zero-ten regime was itself introduced (on 1 January
2008) in order to meet criticisms from the EU Code of Conduct
Group.
In late 2009, Guernsey was told that "in the
view of certain unidentified EU states" its new corporate tax
regime was not "in accordance with the spirit of the EU Code of
Conduct, whatever that means", says Parrott.
Though Guernsey has agreed to review the
regime, with a provisional presumption that flat 10 per cent
corporation tax will be introduced, it has not yet decided on the
details.
According to Parrott, the favourite emerging
from the consultation period is a move to a territorial system of
tax, as in Singapore and Hong Kong. Under this system a company
will be taxed in Guernsey only on income earned or sourced there
(for some value of "sourced").
This may be the solution most politically
acceptable to Guernsey's critics. But no-one on the island can be
sure, Parrott says, "given the lack of clarity surrounding the
concerns raised over zero-ten and the identity of those behind the
move".
Other options are being considered, and
Guernsey might even decide to ignore the EU's demands - although
that is "increasingly unlikely", he says. The big question is
whether Guernsey, with a non-zero tax system, has a future as an
IFC.
The current uncertainty is not helping, he
says: "Mistakes have been made in getting us to this point, [but] a
workable solution will be found. It has to be."
Sources
Guernsey Finance