Contents
Background:
Previous Scrutiny reports
Unfair
competition between local and foreign owned businesses
Would
Jersey-owned businesses be disadvantaged?
Creditable
against United Kingdom tax
Taxing
deemed rents on owner-occupied business property
Compliance
with EU Code of Conduct
a. Jersey
sole traders & partnerships
c. Financial
services companies
Is
creditability against UK tax essential?
Extension
to domestic property
Related
issue: exemption for Pension Funds
Appendix
– credibility against UK corporation tax
A) UK
companies with a Jersey branch
B) UK
companies with a Jersey subsidiary
The Corporate Services Panel has already presented
two reports to the States on the Zero/ten Design proposal:
· Interim Report (S.R. 4/2006), presented to the States on 28th September 2006. This report was based on the initial consultation document, dated 5th May 2006.
· Second report (S.R.3/2007), presented to the States on 23rd January 2007. This report examined the Treasury and Resources Minister’s revised proposals contained in R.80/2006 and the first part of the draft Zero/Ten legislation[1]
The Corporate Services Panel subsequently reconstituted the Sub Panel to conduct the next stage of the review which was to examine the shareholder legislation.
In particular, thetThe Sub Panel also wished
to follow up one of
the major concerns identified in its earlier reports, namely the fact that non-Jersey
owned businesses would escape tax liability in Jersey. The Sub Panel believes
that this wcouldould give non resident
owners a competitive advantage over local firms, particularly if
they are also avoiding or postponing tax in their own jurisdictions, and could encourage them to seek to buy out
locally owned businesses.
The Sub Panel believes that a proposal from Jurat Peter Blampied (the ‘Blampied
proposal’) for aits
recommendation to the Minister that he investigate the proposal
to tax on
owner-occupied business property (in effect a re-introduction of Schedule A) is a workable solution
to the problem of collecting a tax contribution from foreign-owned trading
companies. in
order to collect a tax contribution from foreign-owned trading
companies, the ‘Blampied proposal’.
The Sub Panel was
pleased to see that Tthe
Treasury and Resources Minister has acknowledged that this proposal is the
only potentially viable ‘effectively
the only solution I can see on the table which has anything going for it at
all’[2]. option
The
Sub Panel was pleased to see that and that he
has agreed to investigate the economic impact and the estimated potential yield.
This interim report is presented to the
States by the Sub Panel in advance of its further review of the draft
shareholder legislation[3]
in order to share with States members its adviser’s analysis
of this proposed solution.
The Corporate Services Scrutiny Panel is
constituted as follows –
Deputy P. J. D. Ryan, Chairman
Senator J. L. Perchard, Vice
Chairman
Connétable
J. Le Sueur Gallichan
Connétable
D. J. Murphy
Deputy C. Egré
Officer support: Mr M. Haden and Miss S. Power
For the purposes of this review the Panel
formed a Sub Panel, which was constituted as follows –
Senator J. L. Perchard, Sub
Panel Chairman
Senator B. Shenton
Deputy P. J. D. Ryan
The Panel engaged the following advisers to assist it with the review –
Mr. Brian Curtis, FCIB, MSI (dip.), PFS,
FInstD, has worked in Jersey's Finance Industry for some 35
years and is currently involved with a number of activities
within the industry and the voluntary sector.
Mr. Richard Teather, BA, ICAEW, a senior lecturer in Tax Law at Bournemouth University; a Freelance Tax Consultant and a writer on Tax Law and Policy.
The Corporate Services Scrutiny Panel approved the following terms of
reference for the third phase of the review of the Zero/ten design proposals:
To review the second part of
the Zero/Ten Draft Legislation, and any areas of concern raised by the Zero/Ten
system as modified by that draft law, with a particular focus on the following
areas –
1. The
provisions for taxing Jersey-resident shareholders;
2. The
provisions (or lack thereof) for obtaining revenues from non-Jersey owned
companies;
3. The
distributional effects and equity of the proposed Zero/Ten system;
4. The
effectiveness and fairness of any anti-avoidance measures and disclosure
obligations;
5. The
extent to which the proposed legislation meets the concerns raised in the
Panel’s first two reports on Zero/Ten; and
6. The
extent to which the obligations under Jersey’s agreement with the EU have been
satisfied.
The following documents are available on the
Scrutiny website
http://www.scrutiny.gov.je/research.asp?reviewid=56
BDO Stoy Hayward LLP - Review of the ‘Blampied
proposal’
from a United Kingdom tax perspective, 21 December 2006.
What is the economic and distributional impact of
an owner-occupied immovable property tax? Note prepared for States of Jersey by
Oxera, 22nd
May 2007
Note prepared by Jurat P.G. Blampied on the Oxera
Paper: What is the economic and distributional impact of an owner-occupied
immovable property tax?
The following witnesses
attended hearings with the Sub Panel:
7th August 2007
Jurat P.G. Blampied
16th August 2007
Senator Terry Le Sueur, Treasury and Resources
Minister
Mr. Malcolm Campbell, Comptroller
of Income Tax
Verbatim transcripts are
available on the Scrutiny website
‘RUDL’ charge
1.
The Under
Zero/Ten the profits of Jersey-owned businesses would be taxed (as deemed
distributions to the shareholders), but non-Jersey owned businesses (including
many High Street operations) would escape any tax liability in Jersey. The Sub
Panel believes that this would give non
resident owners a competitive advantage over local firms, particularly if
the owners are also avoiding (or postponing) tax in their home country..
2.
Furthermore, the Sub Panel believes
it is vital
that the Island continues to receive some form of tax contribution from non-Jersey
owned companies trading in the Island, and that it is equitable for them to continue to make some
form of contribution to States revenues.
3.
The
Treasury recognised at an early stage in their design proposal that there was problem herefailing to tax
foreign-owned businesses would cause problems for the Island.. The initial
Zero/Ten Design consultation document therefore contained a proposal which was
aimed at ensuring that off-island owned businesses continued to make a
contribution to the Island’s tax revenues once the standard rate of corporate
income tax was reduced to 0%. This became known as the ‘RUDL’ charge as it was to be levied on all businesses registered
under the Registration of Undertakings and Development (Jersey) Law 1973.
4. In RC 80/2006 it was stated:
The charge would avoid unfair competition between local and foreign
owned businesses and any tendency for locally owned businesses to sell out to
foreign investors (16.2.3)
5. The charge would not have impacted on locally-owned companies as it was intended that it would be creditable against income tax paid by resident shareholders. The problem for foreign owners, however, was that the charge would not be a creditable tax in their home territory and would have been an additional cost of doing business in the Island.
6.
The Sub Panel, while agreeing with the concerns that had prompted
the RUDL charge, had strong concerns with this proposalproposal itself,
and felthearing from
witnesses that it would be excessively complex, administratively
expensive for both businesses and government, discourage new investment into
the Island, and increase prices for consumers.[4]
The Sub Panel was therefore pleased to note that the Treasury removed
the RUDL charge from the Revised Design Proposal as a result of the opposition which
had been voiced during the consultation and Scrutiny period.
7.
8.
It has been said by the Treasury that non-Jersey
owned businesses would not gain any advantage under 0/10, because their tax reduction
in Jersey will be balanced by additional tax in their home
country, leaving the total tax on
their profits unchanged.
9.
For example a Jersey business owned by a
UK company currently should pays
20% tax
in Jersey plus a further 10% in the UK (the UK’s usual rate of 30% minus the
credit given for the Jersey tax paid).
Under 0/10 there willshould be no Jersey tax,
but also no tax credit in the UK, so the full 30% tax will be due in the UK. The tax would be paid wholly to the
UK Treasury, rather than some to Jersey and some to the UK, but the total
amount remains unchanged.
10.
The Panel received sufficient evidence to concludewas advised that this view is
naïve, and that non-Jersey owned businesses would be able to avoid tax, or postpone it for many years[5]. Simple tax planning would thereforeEither would give them a significant advantage over Jersey-owned businesses, and amount to unfair competition.
11.
Even those accountants who said that these
businesses would pay tax in the UK implied that any payment would be postponed
and uncertain - they would only say that “at some point they probably
will” pay UK tax, and that “it is just a fact of commercial life that if you
introduce a rule people are suddenly inspired to think around it”[6].
12.
Indeed the Treasury’s own approach to
0/10 suggests that many shareholders will seek to avoid tax once their
companies become tax-free under 0/10, otherwise the deemed distribution provisions and
the extended information powers given to the Comptroller would not be
necessary.
13. In the case of a Jersey branch of a UK company, it is true that the full profits would be taxable in the UK (currently at 30%) as soon as they are earned. However in the case of a UK group with a Jersey subsidiary, under 0/10 that subsidiary will pay no tax in Je