Bringing more financial firms into tax net is Budget option

EXTENDING 10% tax to more financial services companies in Guernsey could be on the way soon.

Gavin St Pier

EXTENDING 10% tax to more financial services companies in Guernsey could be on the way soon.

Treasury and Resources minister Gavin St Pier would not be drawn over whether such moves would be included in his first Budget to be presented to the States later this year.

But he accepted that extending the scope of 10% taxation had been widely discussed in various circles, now that zero-10 had been accepted again by the EU Code of Conduct group.

‘Earlier this year we committed to rolling back on deemed distribution and that we would look at measures which would need to be taken in order to deal with a resulting shortfall in revenue, which would be part of the normal budgeting process,’ said Deputy St Pier, pictured.

Comments for: " Bringing more financial firms into tax net is Budget option"

Dani

It could be counter productive in the long term if it reduces the competiveness of our jurisdiction.

GM

Dani

How would it? Our main competitors are Jersey and the Isle of Man and their broader financial services companies pay the 10% rate, unlike ours. We would just be on a par with them.

Nearly all financial services businesses who are subsidiaries of other companies would see the parent company get a credit for any taxes paid here. The only likely circumstance where there that would not apply is if the parent or other shareholders are resident in countries to with a tax rate of less than 10%, and so would not be able to get a credit for the 10% tax paid here. That is likely to be a very rare situation indeed.

It was a surprise to many, and I understand with no lobbying from them at all, when trust companies and fund admin companies were excluded from the group of businesses who would pay the 10% tax. It really will make no material difference competition-wise, and would only be an issue if the tax rate was in excess of 10%. Most of these businesses are owned by local residents who pay 20% income tax here anyway, and so any tax paid by their companies would be offset against their personal tax bill. It just means slightly earlier tax collection than might otherwise have been the case.

Dani

GM

Thank you for filling me in on the situation.

I do not have an extensive knowledge of how other jurisdictions are set up for tax so deliberately used the word "could". I based my logic on that if it did make us less competitive it could reduce revenues instead of increase them which with my facts (incomplete) at the time was fair enough.

I do take your point now however. If I understand correctly the best benefit this will bring is it would just make the cash flow spread more evenly for the States if other financial institutions are taxed at 10% a year (and 10% when transferred out to individuals)as opposed to 20% when profits are finally taken as a distribution.

It has now been pointed out to me that it was only originally 0% as this gave a better perception than 10%.

Also I have been informed that how easy the regulators are to deal with is a far more important factor in regards to the attractiveness of a location for trust providers as opposed to the tax rate.

GM

Thanks Dani

You have hit the nail on the head. If the regulator excessively regulates businesses then the tax rate is academic as there will be no profits to tax!