Look-through provisions proposed under zero ten taxation

1240/5(2623)

WRITTEN QUESTION TO THE PRESIDENT OF THE FINANCE AND ECONOMICS COMMITTEE BY DEPUTY G.P. SOUTHERN OF ST. HELIER

ANSWER TO BE TABLED ON TUESDAY 13th SEPTEMBER 2005 Question

"Would the President inform members –

1. whether thelook-through' provisions proposed underzero/ten will resemble the Profits Distribution Charge in the Isle ofMan?
2. of the measures that are proposedfor this tax to ensure that it is treated bytheEUaspersonal and not companytaxation?
3. how individual tax-payers will declare and confirm any liability to tax underlook-through' and how this will be administered? and,
4. how manyother jurisdictions use similar look-through'provisions?" Answer

"(a) The proposed look through' provisions are different to the Profits Distribution Charge in the Isle of Man in

some respects although they do have a similar rationale, namely, to protect tax revenues on the introduction of the zero/ten corporate reforms. The former will assess all corporate profits and income arising on the Jersey individuals who wholly or partly beneficially own a company. The latter will tax Manx residents on 60 per cent of the corporate trading profits, and on 100 per cent of the income arising in investment holding companies, by means of a deemed distribution or distributable profits charge. Further detailed information on the Isle of Man charge is contained in the consultation document issued by the Isle of Man Income Tax Division on 18th January 2005.

2. The lookthrough' provisions will be a charge totaxationonJerseyresident individuals and will be a personal tax measure. Further detailed information on this personal tax measure is available in the written answer tabled on19th July 2005and in the oral answer given on 19th July 2005, both answers being in responsetoquestionsaskedby the Deputy .
3. Everytaxpayerhasan obligation to declare incomeand profits brought into chargeby the IncomeTax (Jersey) Law on his orherpersonalIncomeTaxReturn.Theprovisions relating to look through' will place such an obligation onall Jersey taxpayers. It will beadministered by staff currently working at the Income Tax Office. Further detailed information on how the look though' provisions will be administered is contained in P.44/2005.
4. Territories generally aim to ensure that the tax rates for individuals and for companies are not too dissimilar. If there is a disparity betweenthe two tax rates then there is a need to find somemechanism to offset tax planning arrangementsaimed at reducingthe overall liability. Themechanismto be adopted will vary from one territory to another,butat the present time both GuernseyandtheIsleofMan are consideringsome form of lookthrough'. Similarly, in the United Kingdomwhentherewas previously a disparity betweenpersonal and corporate tax rates, there were close company' provisions, similar to lookthrough', to ensure that tax liabilities were notcircumvented.Othercountriesmayimpute a deemed profit distribution from private companiesincaseswhere the personal tax rateishigher than thecorporate rate. As the trend generally isto reduce both the corporate and personalratesoftaxto similar levels, most countries will not need such look through' provisions. The same is true in those jurisdictions wherepersonaltax rates are below the corporate rate, since there is then an incentive to distribute profits. Ultimately, if general corporate tax rates move towards zero,there will be a tendencyto rely moreand more on indirect taxation measures.Caribbean territories are good examples ofthis."