Non taxation of Jersey trading companies owned by non residents (FOI)

​​​​​Request

Please supply the estimated loss of annual income tax revenue from:

A.

The non taxation of Jersey trading companies owned by non residents.

B.

The repeal of the deemed distribution and attribution provisions under the zero/ten tax system.

Response

A.

The estimated loss of annual income tax revenue from companies trading in Jersey, that are wholly owned by non residents, as a direct consequence of the introduction of the zero rate of corporate income tax is between £7m and £9m. This estimate is based on the corporate income tax that was paid by companies trading in Jersey that were wholly owned by non residents for the 2008 year of assessment, the last year of assessment before the zero/ten corporate income tax regime came into full effect, and which would have been taxed at zero percent for the 2009 year of assessment. It is not possible to be more specific for the following reasons:

• There is an indicator on the Taxes Office system that records if a company is wholly owned by non residents. This has been used as a means to arrive at the estimate above - however it should be noted that:

• The indicator records the current ownership of the company (and not the ownership at the time of the 2008 year of assessment (see below))
• The indicator is not a means to identify the proportion of registered ownership in any company between Jersey residents and non Jersey residents

• The Taxes Office system records the registered ownership of companies and not the ultimate beneficial ownership. The registered owner and the ultimate beneficial owner may be different.

• The Taxes Office system records of companies and individuals do reflect registered shareholders and shareholdings respectively but due to the existence of nominee shareholdings, group structures and similar it is not straightforward or always possible to link from a company record to the ultimate Jersey resident shareholding.

• The answer is based on the tax payable by the identified companies for the 2008 year of assessment i.e. at one fixed point in time. In other words it has considered the position as if those companies continued to exist and made equivalent profits moving forward. It has not taken account of potential changing circumstances such as: profit trends in those companies; subsequent liquidations; formation of new companies trading in Jersey; etc.

B.

The repeal of the deemed distribution and attribution provisions under the zero/ten tax system:

This question was addressed in a recent written question in the States Assembly tabled by Deputy M. R. Higgins on Tuesday 9 December 2014 and answered by the Minister for Treasury and Resources.
The specific matter was answered in part (h) of the question as follows:

“(h) the estimated loss of tax receipts from the loss of deemed distribution from Jersey owned companies shareholders. Before answering this question it is worthwhile reminding all members how the deemed distribution and full attribution rules operated. Broadly where a Jersey resident shareholder owned shares in a Jersey company, the profits of the company could be deemed to be distributed to the shareholder and taxed on them personally. However the rules were complicated and the amount deemed was impacted by factors such as the activities of the company and whether the company paid actual dividends to an individual within a certain timeframe. Because of the way in which deemed dividends/full attribution profits were declared on personal tax returns we can identify how much tax was declared under these provisions whilst they were in operation. Based on an analysis of data extracted from tax records at March 2014 the direct tax impact from the repeal of deemed distribution (which in this answer includes the loss of attribution from investment holding companies) for the 2012 year of assessment is a reduction of revenue of approximately £8m. The 2013 year of assessment direct impact will be approximately £3m, meaning that the estimated direct long term tax “loss” (see qualification below) will be in the region of £11m.

It cannot be stated that this amount of tax will be “lost”. Taxable profits arising in companies are taxable when they are distributed to Jersey resident shareholders. The distribution rules introduced with effect from 1 January 2013 seek to prevent taxpayers avoiding or inappropriately deferring this tax by taking value from their companies in a way which may have been non-taxable before the distribution rules were introduced.
It is acknowledged however, that where distributions are deferred such that they take place when the individual recipient is not taxable in Jersey, no Jersey tax will arise on this distribution.

“As the distribution rules were introduced with effect from 1 January 2013, the first reporting to the Taxes Office under this regime took place during 2014. This data is currently being analysed in order to identify the potential impact of the distribution rules on taxpayer behaviour and the corresponding impact on income tax revenues (noting that as only one year of data is currently available the conclusions that can be drawn from this analysis will be necessarily limited). This analysis will be used to help inform the work of the Income Forecasting Group. The intention is to publish the next report of the Income Forecasting Group alongside the Medium Term Financial Plan 2016-2019 in July 2015."