UK’s corporation tax change ‘could be significant for local companies’

HM REVENUE AND CUSTOMS has published a consultation document on how it plans to bring ‘non-UK resident companies’ within the scope of the UK’s corporation tax regime.

davidwaldronpwc

David Waldron, tax director at PwC in Guernsey, said the move could potentially be significant for local company structures used to hold property in the UK.

‘All non-UK resident companies are affected, but those most affected will be non-resident property holding companies, such as those commonly set up in the Channel Islands, which have significant gearing and which are large and/or loss-making,’ he said.

Currently, non-resident companies are only subject to UK corporation tax on trading income if they are carrying on trade through a permanent establishment in the UK.

Other UK source income, such as rental income, is subject to UK income tax.

The change is being proposed so the new interest deductibility rules and the loss relief rules, applying from 1 April 2017 for those already within the corporation tax regime, can be extended to non-UK resident companies.

‘The government thinks this is the better option as opposed to introducing further and probably more complex legislation to implement the same rules for corporates subject to income tax,’ Mr Waldron said.

Comments for: "UK’s corporation tax change ‘could be significant for local companies’"

Don Tramp

Well that will be the death knell for Guernsey as they have already destroyed our banking with their No Court Order Snoopers Charter. I have heard that they also wish to hit CI residents with UK passports with Inheritance Tax regardless of how long they have lived here. No doubts our Polits will assist them with this aswell.

GM

Don Tramp

Utter nonsense. The main reason for the big reduction in our banking sector is that the global offshore banking model was completely broken. A sustained period of low interest rates eroded the demand for offshore deposits (the amount of tax payable on interest earned of 1% or less is negligible). Add to that the global attack on individuals illegally hiding money offshore, it means that the residual number of people who can place money offshore AND legitimately avoid or defer tax on interest at a level which makes it worthwhile for them has been decimated. Impossible for offshore banks to have a viable business model in those circumstances unless they are generating substantial revenues from other activities such as investment management, lending, fiduciary services or fund administration services.

By contrast, what has grown in its place is the offshore funds industry as investors seek better returns on their money by investing in a broader range of assets such as real estate, private equity and debt instruments.

Unlike several jurisdictions, Guernsey's banking industry was never heavily dependent on people illegally hiding their money here. Clearly there was some of that type of money here, and nobody can deny that, but the loss of it has hardly had any impact at all on our banking sector.

As for your IHT comment, you've obviously been listening to that clown Richard Murphy and his wacky ideas as he's been peddling this for years. Departing UK residents are already deemed domiciled in the UK for IHT purposes for 3 years after they have left the UK even if they have actually managed to shed their UK domicile by severing their connections with the UK, but that in itself is very hard to achieve. There are many people from the UK who have resided here for many years, are regarded as non-UK resident fur CGT and Income Tax purposes, but who are still regarded as UK-domiciled and who therefore remain liable for UK IHT on their worldwide assets.

100% Donkey

GM

Absolutely right - indeed non-transparency jurisdictions will not survive. People think deposit taking is a big earner, it isn't. Spin offs from Fund Administration like Foreign Exchange are where the profits are.

I just wonder for the future - I cannot see any Brexit other than a hard Brexit and where that will leave CI access to EU markets is a worry.....

GM

100% Donkey

I'm not sure that Brexit is going to have too big an impact either way on our finance industry. I can't see any positives, but the negatives aren't too significant either.

The amount of private client business here (fiduciary and private banking) which relates to continental European residents is tiny. They've long preferred to deal with Switzerland. Luxembourg, Austria and Liechtenstein, and business driven away from there by EUSD went to Singapore and Hong Kong. Obviously there's a lot more business which is linked to the UK but that won't be affected.

Fund administration is more complex. Most fund administration groups here have sister companies already in Dublin, Malta and Luxembourg and that's where most of their EU-related business goes already. Yes, some funds which are most suited to Guernsey do get marketed to EU investors and that's going to be affected, but the scale of that will not in my view be devastating to the local industry.

If the EU in Brussels decides to impose some sort of blacklist on the finance industries of the Crown Dependencies post-Brexit then I don't think it would have much of an impact at all. They seem convinced that there is a lot of undeclared continental European money here - but there just isn't. The EU money which is here is from the UK, held in fully tax-compliant structures. Yes there are probably still tiny amounts of undeclared UK-connected money here, but a combination of the EUSD, FATCA, CRS and our willingness to be at the forefront of transparency will have already scared off such money over the past 5 years to less-compliant jurisdictions.

100% Donkey

GM

Many thanks for your comments.

It's the Fund Industry that concerns me. You are right that some fund administration groups do have sister companies in Dublin etc. It is because of these locations that the appetite to launch funds in Guernsey could dissipate - indeed that is already happening.

I for one am not suggesting Armageddon - far from it, but like the City it is probable that we will see some downsizing of the providers operating here.

Even a minor reduction could have dramatic effects on what is an already struggling economy.....

GM

100% Donkey @12.45pm

Yes, I think that is quite possible, but I think the impact of that will be a reduction in future growth as opposed to an exodus of anything already here. However existing funds have a natural life cycle which means that one challenge is to replace those funds as they mature.

Whilst it is very easy to focus on the negative impact of Brexit in terms of EU-connected funds, at the same time there is no reason why Britain's efforts at generating new trade from the rest of the world will not produce new fund opportunities for Guernsey. But our marketeers will have to get out there and find it. For example, the Middle East and China will produce new fund opportunities for Guernsey - totally unaffected by Brexit.

100% Donkey

Good comments GM.

I fully agree and I like your positivity.

The biggest problem with Brexit is the unknown but as you say, there may well be future opportunities outside the EU. As we are not in the EU, some of those possibilities might have already been explored....but I guess the key to any challenge is to adapt.

One again thank you for your comments.

Don Tramp

If you feel Court Orders are a waste of time and a Country should be able to tax its citizens who have escaped years previously then I bow before you.

Guernsey was wealthy due to its low tax status for emigres / companies combined with firm but fair jurisprudence- both have now been severely eroded. Sadly that is why we will now go broke as milking cows is not that lucrative.

GM

Don Tramp

You'll have to explain that one to me.

The US is one of only about 3 countries (I think Eritrea and the Philippines are the others) which taxes based on citizenship rather than on residency.

The UK has always taxed UK-domiciled persons on their global assets (for IHT purposes only). That applies to both UK citizens and foreign citizens who have not shed their UK domicile or UK deemed domiciled status.

Guernsey remains a low tax jurisdiction for wealthy immigrants. No IHT, no CGT and just 20% income tax. Compare that with the U.K. (from where most tax-driven emigrants have historically come).

Not sure why court orders seem to bother you so much. If individuals are declaring are what they are obliged to declare in other countries then what's the issue for them? If they are trying to hide money illegally then Guernsey really is the last place they should try to hide it as you can guarantee that the information will be exchanged with the UK under CRS.

Guernsey is not going to "go broke" by getting rid of any dodgy money as there can hardly be any of it left these days. I don't think you have a very good grasp of the local finance industry today if that's what you believe.

Don Tramp

In that case property prices will not drop a further 10 % this year ?

GM

Don Trump @11.26pm

They might, or they might not. And if they do then it could be for any number of reasons.

I see no correlation whatsoever between your moans about court orders and local house prices. Please elaborate.

Don Tramp

Court Orders, Warrants and Juries are nothing but a waste of the taxpayers money - if u dun nufin ron u gat nufin ta ide.

GM

Don Tramp

Not sure what you are smoking but you may need a new supplier.