Guernsey's zero-10 regime has been deemed "harmful" by the EU's Code of Conduct Group on Business Taxation.
While the Code of Conduct Group has ruled similarly on the zero-10 regimes of both Jersey and the Isle of Man, Guernsey had argued that the deemed distribution element of its own zero-10 tax regime* was different to the Jersey and Isle of Man regimes, and was compliant with the Code Group’s criteria. However, the EU viewed it differently.
On receiving the news Guernsey’s Policy Council issued a statement saying, “Whilst accepting the operation and timing of Guernsey’s deemed distribution regime differed to that of Jersey and the Isle of Man, the European Union’s Code of Conduct Group on Business Taxation this week determined that its de facto effect was the same – and thus harmful.”
The Policy Council said it was still waiting for formal notification of the conclusion and to be provided with a detailed explanation of the European Commission’s technical assessment of the deemed distribution regime. Once this has been received, Guernsey ministers will be in a position to review what actions are appropriate to recommend to the Island’s parliament.
However, Guernsey Finance says it now looks certain that Guernsey will follow the other two international finance centres in removing deemed distribution as a way to retain the zero-10 regime as a whole. Guernsey Finance added that the jurisdiction also has a tax exempt regime for collective investment schemes and it is expected that later this year it will be extended further to apply to any vehicle which is part of a fund structure.
* Under Guernsey’s zero-10 regime, all companies are taxed at 0%, except for the profits of specified banking activities which are taxed at 10% (and local utilities at 20%). However, Guernsey resident shareholders are taxed at 20% of profits from either actual or deemed distributions, where the latter include dividends, disposal of shares, migrations, liquidations and investment income.
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