Guernsey Press

Corporate tax reform before any GST moves - former Treasury minister

GUERNSEY’S corporate tax system should be reformed before the public is asked to pay more via a goods and services tax, a former Treasury & Resources minister has said.

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Deputy Charles Parkinson has put forward the case for a territorial tax (30556281)

Charles Parkinson, who is a chartered accountant, barrister, and published author on international tax, has written a paper claiming that the zero-10 regime has been a failure.

He wants the island to ditch it and adopt a territorial tax system.

‘Employment in Guernsey’s crucial finance sector in 2009, just after the introduction of zero-10, was 7,113,’ said Deputy Parkinson, who has also previously been Economic Development president.

‘In 2021 it was 5,970. At the end of 2008, Guernsey had 48 registered banks. Today that number is 28.

‘The zero-10 regime was promoted on the basis that it would encourage growth in our finance sector – it has failed.’

Under a territorial system, companies pay tax on their income only where they earn it.

Guernsey currently uses the worldwide income model for its taxation of corporate income, this means that companies pay tax where they are resident on all income from anywhere in the world.

The zero-10 regime was established under the worldwide income model, and it means most companies locally pay 0% corporation tax on their profits and most financial institutions pay 10%.

The Organisation for Economic Co-operation and Development already has tax reform in its sights as it moves towards a global base rate of corporate tax.

Deputy Parkinson believes that zero-10 has left ordinary islanders picking up the bill.

‘Quite simply, the zero rate of income tax exempts from tax the profits of most companies operating in Guernsey’s domestic economy,’ he said.

‘If the company is resident in Guernsey, and its activities are not subject to one of the higher rates of tax, its profits will, in general, only be charged to tax when those profits are distributed to Guernsey-resident individual shareholders.

‘If the shareholders are not resident in Guernsey, the profits will escape tax entirely, because there is no withholding tax on dividends paid to non-residents.’

Deputy Parkinson is not suggesting that a territorial tax system would solve the island’s fiscal problems, and at this stage there are no hard numbers attached, but he thinks it would be a good place to start.

‘Corporate tax reform is a necessary pre-condition for any other tax changes.

‘The Guernsey public can legitimately demand that all participants in the Guernsey economy should pay their fair share of the costs of our society, before the public are asked to pay any more.’