24 October 2012
A report on the taxation of foreign-owned non-finance companies has been published by the Minister for Treasury and Resources.
The Minister’s report is supported by a report by the Tax Policy Unit, which sets out the detailed consideration given to options for increasing revenues from these companies, all of which would tax company profits, impose a charge or restrict companies’ ability to recover the GST they pay.
The options can be summarised as: -
- extending the 10% or 20% bands
- a payroll charge or a charge based on property size
- deemed rental (so-called “Blampied”) tax
- restricting input GST recovery
- introducing a form of community charge
Tax neutrality
The report found that imposing a tax or charge linked to profits could jeopardise the tax neutrality, which is the mainstay of the island’s financial services industry. It also found that a tax or charge specifically aimed at one sector, or selectively affecting non-locally owned companies, would be paid for by Jersey residents through higher prices, reduced wages or increased unemployment.
And it found that any measure aimed at non-locally owned businesses would deter inward investment and be detrimental to economic growth.
When the economic conditions recover, the report considers that it may be appropriate to introduce changes to the way property is taxed in the Island. Jersey taxes property and property ownership lightly compared to other jurisdictions. A substantial review of land and property taxation as a whole has begun. Some changes may be proposed in the 2014 Budget next year, if appropriate.
Risk assessment
The Treasury Minister, Senator Philip Ozouf, said “A great deal of work has been done on the compilation of these reports and it is evident that there is no perfect solution. All the options would create new problems.
"Extending the 10% or 20% band risks compromising compliance with the EU Code of Conduct, which in its turn could jeopardise tax neutrality, the mainstay of our financial services industry. Some of the potential charges reviewed also run the same risk. And charging a specific sector would add to the cost of doing business, leading to increased prices and the stifling of economic growth.
“There is further action that we propose taking. Firstly, the States can approve the anti-avoidance measures in the 2012 Budget. Secondly, more work can be done on property taxes, including tightening the rules so that non-residents pay the tax we expect on income from commercial property in Jersey. Property tax is an efficient way of raising revenues and I intend to make sure such investors pay the right amount of tax.
“Thirdly, we need to collect better data from companies. This is not just about collecting data for the sake of it. We need this data to help develop future tax changes. A White Paper on collecting proposing to collect relevant data through Statistics Unit surveys is also published today (24 Oct).
“We will continue to work with the other Crown Dependencies, who are facing the same issue, and we will watch international developments to see if we can make changes in the future which are currently not possible.”
Principles
When reviewing the options, the Tax Policy Unit was guided by the following principles: -
- Tax neutrality is essential to maintain our finance industry
- A stable tax environment is fundamental to economic growth
- Our company tax regime - approved by the EU – must be protected
- Any new measures should support inward investment and growth strategies
Download Tax Policy Unit's report on non-Jersey owned companies (1.71mb)
Download Treasury Minister's report on non-Jersey owned companies (128kb)
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