Public consultation prompts Treasury to simplify zero-ten proposals
The Treasury and Resources Minister has made significant changes to the proposals outlined in the consultation document ‘The Zero/Ten Design Proposal’ issued earlier this year in response to public and industry feedback.
The main thrust of the proposed zero-ten tax structure has found support from the financial services industry. The majority of respondents to the extensive and detailed public consultation acknowledge that the zero-ten changes are vital to Jersey’s continued economic success.
As a result, the broad sweep of the proposed new tax structure remains the same – a standard rate of corporate tax of zero per cent, together with a special rate of corporate tax of ten per cent for specified financial services companies.
There was concern expressed though about some of the details of the first set of proposals. As a result, Senator Terry Le Sueur has dropped the so-called RUDL (Regulation of Undertakings and Development Law) charge, following concern that it could discourage investment in Jersey, penalise the weaker sectors of the economy and cause cash flow problems for companies.
The RUDL charge was designed to raise some financial contribution (an estimated £5-£7m a year) from non-finance, non-Jersey-owned companies operating in the Island. Under zero-ten these companies would no longer make any direct contribution to Jersey. The Treasury will continue to investigate alternative longer-term solutions to this problem.
The Minister has also shelved proposals for a Limited Trading Partnership (LTP) Law, because it was designed to operate in conjunction with the RUDL. Its introduction for wider uses may be considered at a later stage.
Another departure from the original proposals concerns the profits of trading companies. Under the revised structure, non-finance trading companies will pay zero per cent tax, but company shareholders will be taxed on the amount of dividend they receive, or 60 per cent of the company’s profits, whichever is higher. There will not be a tax charge on the balance of undistributed profits (a ‘deferred distribution charge’), but if the company is sold or liquidated, shareholders will then be liable for tax on their share of the remaining untaxed profits.
Senator Le Sueur commented: ‘Treasury and Resources has now completed what’s been an exhaustive and extensive consultation on the zero-ten proposals. I’ve been encouraged both by the quality of responses to the consultation, and also by the general support expressed by the industry for the overall approach of zero-ten and I’m confident that we now have a workable and effective structure to take to the States for debate early next year.’
The revised proposals will form the basis of a draft law which will be lodged with the States shortly and should be debated in January 2007.
-ends-
Background
The States agreed to move to a new corporate system of taxation in 2004 in order to meeting growing international competition and EU rules on harmful tax practices.
Jersey will lose income from the introduction of zero-ten, so the Island has had to consider new ways of raising tax revenue to ensure the current standards of public service are maintained. As a result, zero-ten is part of an agreed package of reforms to Jersey’s tax system to shift from direct to indirect taxation – in line with international trends.
Other parts of the reform package include the introduction of a broad-based (GST) Goods and Services Tax at a rate of three per cent, the phasing out of tax allowances for taxpayers on higher disposable incomes (‘20 means 20’), the introduction in January 2006 of ITIS, and the forthcoming introduction of an income support system to help the least well off.
