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Response to Corporate Tax Review


Dr Andy Sloan

States Economist and

Secretary to the Fiscal and Economic Policy Group

Sir Charles Frossard House

PO Box 43

La Charroterie

St Peter Port




26th August 2010


Dear Dr Sloan,

Corporate Tax Review - Chamber’s response

Chamber's Financial, Legal and Tax sub group have been considering Chamber's response to the Corporate Tax Review Consultation.  All Chamber members have been circulated for input, and the sub group have met with senior civil servants and advisers involved in this Consultation. 

The Consultation document sets out five different options for Guernsey's future corporate tax regime.  In considering these options the sub group have taken into account the five key criteria listed in the documentation, (i.e. must be competitive, internationally acceptable, etc., etc.), and have also formulated the following views:

·         The review needs to take account of the views of the non-finance sector (60% of GDP) as well as those of the finance sector (40% of GDP).  


·         Most non locally-owned businesses (e.g. UK High Street retailers, construction companies, as well as most financial services businesses) currently pay no corporate taxes in Guernsey.  A 10% minimum corporate tax rate should be acceptable to all businesses with a local establishment in Guernsey, and will put them on a more equal footing with locally owned businesses.


·         Chamber recognises that even with a 10% minimum corporate tax rate,  there will, if possible, need to be a "carve out" for certain financial services companies such as captive insurance companies, funds and asset holding companies.  Without these "carve outs" there is a risk that these companies could leave Guernsey. 


·         Local companies have already incurred additional expense and administration post "Zero-10", with significantly increased company registration fees and more legislation (e.g. Deemed Distributions).  The new corporate tax system should be as clear and simple as possible, with minimal additional administration being required (and ideally less).


·         Although the majority of Chamber's members are not in the finance sector, the continued existence of a buoyant finance sector is of vital importance to all Chamber's members.  For those financial services businesses that are members of Chamber, it is considered that representations on specific technical taxation issues affecting them will probably be made more effectively made by finance sector organisations such as GIBA, AGB, GAT etc. rather than Chamber.


Based on the above, the current view of Chamber's Financial, Legal and Tax sub group is that the "Territorial" system of taxation described in the Consultation paper would be the preferred option for Guernsey business, and therefore the option that Chamber would support. 


What would be the impact on Guernsey’s International competitive position?

Guernsey, historically, has been chosen as an international location for international businesses for a wide variety of reasons.  These reasons include the quality of support services and the opportunity that they create; the quality of Legal and accounting services and the ethos and living conditions of Guernsey island life itself amongst others.  Tax may be one of the considerations taken into account when looking at residence options for a business but it has proven over many years not necessarily to be the driver.

It is our view that Guernsey would retain an internationally competitive position if it were to adopt a ‘territorial’ system of taxation.   Obviously the level of tax would be of relevance but the fact that other, both EU and non-EU, onshore and international, jurisdictions have generally maintained their competitiveness backs up the premise.  There are inevitably exceptions and the Chamber recognises the sensitivities of, for instance, the captive insurance sector.  The Chamber would therefore anticipate that the Fiscal and Economic policy Group would take account of these sensitivities while formulating proposed policy. 


What are your views on the international acceptability of such a regime?

This point has been adequately covered, in our view, in the Public Consultation document itself in section 6.1.  The Chamber of Commerce supports the points made that back up the view that there is already significant international recognition and support for a territorial system.  It is also, arguably, both transparent and pragmatic as well as having the virtue of simplicity.


What are the potential issues that could negatively impact on your business?

For locally owned companies, who are presently paying 20% tax on distributions (deemed or actual), it is difficult to see any significant negative aspect in the Territorial option.  This is on the assumption that if a standard rate of 10% was introduced, locally owned businesses would receive a credit for dividends / distributions re the 10% tax already paid by the company.

It would be a concern if the mechanisms for claiming credits etc. were to be particularly cumbersome or intensive in the administrative effort required, but it is difficult to see that they could be any more involved than the regime we presently have.

We understand that the Territorial system would not work for the financial services sector unless certain "carve-outs" are available (e.g. for investment funds and captives).  The continued success of non-financial services businesses are inextricably linked to the continued success of the finance sector.  If these "carve-outs" were restricted or not available, any consequential loss of finance business would potentially have a significant negative impact on non-financial services businesses.


What potential features of such a regime could have a positive impact on your business?

The Territorial system would result in a "levelling of the playing field" for locally owned companies vs. those non-locally owned who are presently paying no tax at all.

The administration of the Territorial system should be straight-forward (but see comments above), and might require less administrative effort than the present system.  We understand that other jurisdictions (including those in the EU) operate Territorial systems, and so this is perhaps the option that is least likely to be challenged, and hence the one that would be most stable.  Stability is very attractive to us.


What do you consider to be the key risks of moving to such a regime?

1.                  The business of certain companies which are not currently paying tax (and the owners of which are not resident in Guernsey) and are incorporated in Guernsey for reasons of tax neutrality could be lost if that neutrality cannot be achieved under a territorial system. The business sector which is most obviously at risk in this context is captive insurance. Much depends on how “Guernsey source income” is defined in this context if we move to a territorial system.

2.                  A “headline rate” of 10% could put off those who might otherwise consider Guernsey as a place to establish a company if other credible jurisdictions continue to offer a “zero” rate.


What do you consider to be the key opportunities of moving to such a regime

The key opportunity is to increase the overall island “tax take” by taxing those companies which carry on business in Guernsey, are not owned by Guernsey residents and do not carry on that business principally for reasons of tax neutrality. Examples of such companies are:

a)                  Subsidiaries and branches of UK (and international) retailers operating in Guernsey; and

b)                  Those (non-Guernsey) financial services companies which are not currently subject to a 10% rate under the zero-10 regime.


Finally, any change to the current system should also take into account a review of the distribution reporting and tax on distributions deduction system which many companies find burdensome and complicated. One way of simplifying the system for some companies may be to allow the income of a company to be assessed directly on its shareholders on an arising basis, referred to in the USA as "check the box", effectively treating a company as fiscally transparent.



Thank you for the opportunity for the Guernsey Chamber of Commerce to participate in this consultation process. Should you wish discuss any of the matters further please do not hesitate to contact me.


Yours sincerely



J Winser


Guernsey Chamber of Commerce.

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