Guernsey: No Harm in New Tax Proposals
The zero to 10 package that was recently proposed by Guernsey is deemed to be compliant with international practices and standards.
The code of conduct regarding business taxation lists 66 measures considered to be harmful in both EU member states and associated or dependent territories.
Guernsey had five so-called harmful regimes. These were exempt companies, international loan business, international bodies, offshore insurance companies and insurance companies.
They were listed because the beneficial tax treatment that is provided is considered to be separate from the domestic economy. The regime is available either fully or in part only to non-residents rather than to residents in the country offering the measure.
"The existence of a zero or low tax regime is not deemed to be harmful in itself. A regime is deemed to be harmful if it is made available to non-residentsí tax arrangements that it does not allow its own residents to participate in,í said the report.
Guernsey complies because having a zero tax for all is not deemed harmful. To charge some companies a higher rate of tax is also fair as long as these companies are a minority and are only a proportion of the overall economy.
These proposals are aimed as much at creating a vibrant economy as responding to international tax standards and competitive pressures.
"A key component of the future taxation regime must be to develop a comprehensive package of measures, which supports the competitiveness of all sectors of the local economy,í said the report from the States fiscal and economic policy working group. The fundamental purpose of the work in this area is to maintain a vibrant and sustainable economy that generates corporate profits, offers well-paid job opportunities and makes a positive contribution to the life of the island. It is only though this economic activity that the States will be able to raise revenues to fund public services and infrastructure improvements."
Should Guernsey continue to be a competitive international financial centre, it has to:
Remain responsive to competitive pressures from other jurisdictions;
Continue to offer those factors which mean that it will remain as an attractive place to live and carry on business;
Comply with international standards on a level playing field basis.
Finance is the major driver of the tax changes. However, the States is keen on developing proposals as part of a comprehensive economic strategy.
Nearly a quarter of the islandís workers are employed in the financial services sector, which contributes 35% of GDP and 65% of the export economy.
The report stated that "The indirect effect on the rest of the economy is equally important. Any taxation strategy needs to address the competitive position of the finance industry as a priority."
"Simply doing nothing to support this industry is not an option as it would lead to the islandís most important economic sector becoming uncompetitive."
The success of the island as a financial center is based on a number of factors, unrelated to the taxation system, but the existence of a competitive tax environment is a very important element.
"In view of the recent and growing competitive pressures facing the island, it is clear that Guernsey needs to amend its taxation regime if the financial services sector is to remain competitive and if the islandís overall economy is to be protected."
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