Sub-committee presents five options for corporate taxation

The Policy & Resources Committee admitted that it was mainly seeking replies from businesses but its tax review sub-committee will listen to any views expressed. The consultation runs until the end of February. Information can be found at www.gov.gg/yourviews.

Deputy Charles Parkinson, who leads the sub-committee and has long campaigned for corporate tax reform after opposing the initial move to zero-10 corporate tax in 2008, said it would be looking to make recommendations before the end of March. He said the sub-committee’s work was progressing well.

Policy & Resources’ vice-president and its treasury lead, Deputy Gavin St Pier, said the consultation document was part of the committee’s collective commitment to carry out its work in an open way, keeping people informed and providing an option to contribute.

‘Tax reform is a complex subject, especially when reviewing options for corporate tax changes and the potential implications – both in terms of predicted increased revenue versus seeking to understand the reaction and decision-making of business operating in Guernsey,’ he said.

‘It is a delicate balance and before making recommendations to the full Policy & Resources Committee, the tax review sub-committee wants to receive feedback from interested parties on the options that remain on the table at this stage.’

Five corporate tax options that the States wants to consider

Full profits

Currently, companies paying the 10% rate only do so on the part of their business income resulting from regulated activity. This change would see the rate extended such that companies carrying out an element of regulated business would pay 10% on all their profit, as in Jersey.

Areas for consideration

Relatively narrow business application;

Provides administrative simplicity for companies and the Revenue Service but could result in business restructuring to split regulated and non-regulated activities;

Reduces potential for significant adjustments to revenues recently seen where error or mistake claims are submitted;

Revenue unlikely to generate more than £500,000 per year.

Sector extension

This option would expand the range of companies/sectors to which the 10% intermediate and 20% higher rates apply, based on the principles of consistency within an economic sector where profits are derived from the same activity, or the activity is subject to specific regulatory oversight. This could include expanding the 10-20% rates to construction, retail, and professional services, as the largest contributors to GVA after the finance sector.

Professional services prescribed business and construction & retail

This ensures consistency and alignment between financial and non-financial services businesses with the application of zero-10.

This would apply to businesses registered with the GFSC under the Criminal Justice (Proceeds of Crime) Law, such as legal professionals, accountants and estate agents that operate through companies (rather than partnerships where typically the partners are taxed on their share of the profits at 20%).

Currently 96% of company profits within the professional services sector are not subject to tax until distribution. Of the remainder, 3% is taxed at 10% and just 1% at 20%.

Application in the construction and retail sectors would ensure a consistent approach to taxation of profits. Currently, 92% of profits within the construction sector are not prescribed business as defined by the GFSC and are subject to tax until distribution.

The remaining 8% are charged tax at 20%. In the retail sector, 75% of profits are subject to tax at 0%. The remaining 25% are taxed at 20%.

Areas for consideration

Requires legislative update to define sectors in scope;

Further application of current tax approach is less likely to trigger external review;

Revenue raising between £0.8m. and £16m. depending on actual rate applied to these sectors.

Zero-15

Guernsey would move from a zero-10 to a zero-15 regime, whereby those currently paying tax at 10%, pay 15% instead, while all other tax bands are unaffected. All other aspects of the current regime remain.

This option may be considered for introduction either unilaterally or, subject to the necessary engagement, in alignment with other Crown Dependencies at a later stage.

Areas for consideration

Revenue is primarily from finance companies and zero-10 currently reflecting alignment within Crown Dependencies;

Unlikely to trigger an external review of corporate tax;

Revenue raising is potentially negative or limited (less than £3m.) as Pillar II already applies 15% tax to a number of companies, albeit with behavioural impact reduced if introduced in alignment with other Crown Dependencies.

Territorial tax

A territorial regime would be instituted at a rate of 10% or 15%, excluding fund managers and international insurance companies. The 20% band would continue to apply, as would the 15% effective rate that applies to entities in scope of Pillar II.

Under a territorial regime, excluding fund managers and international insurance companies, corporate profits would be taxed on the basis of the source of income from which those profits are derived. Only profits arising or derived from activity in Guernsey would be subject to tax. Business profits arising in or derived from (attributable to) a permanent establishment in Guernsey would be taxable.

Income from ownership of land and buildings situated in Guernsey, which includes both rental income and property development income taxed at the higher rate as at present, would continue to be subject to tax at 20%.

Anti-avoidance measures would be used to prevent profit shifting.

Areas for consideration

Compliance, regulation and administration costs to business;

The need for additional measures such as a transfer pricing regime;

Potential requirement for economic substance requirements to apply to a wider scope of companies, together with greater uncertainty of defining the tax base;

Highly likely to be subject to external review;

Revenue raising of between £3.3m. and £14.8m. per year at 10%, or between £5.1m. and £18.4m. per year at 15%, depending on behavioural impact.

Levy

A flat fee for Guernsey companies could be introduced, as an alternative to raising revenue by increasing corporate income tax rates and could apply in addition to the current zero-10 corporate tax regime.

The Guernsey Registry already collects fees from companies on a regular basis. In 2026 it is expected to collect around £13m., primarily in the form of annual validation fees which applies to all registered companies. A levy set at £250 or £500 per annum per registered business would generate between £5m. and £10m. per annum. A levy could apply at different levels, mirroring the application of registry fees.

Areas for consideration

Application alongside current registry fees would represent increased cost of business;

Unlikely to result in external review as not a taxation measure;

Based on current number of registered companies, would be likely to raise, indicatively, between £5m. and £10m. per annum.