Matters relating to tax reforms and the impact of GST

1240/5(2802)

WRITTEN QUESTIONS TO THE MINISTER FOR TREASURY AND RESOURCES BY DEPUTY G.P. SOUTHERN OF ST. HELIER

ANSWER TO BE TABLED ON TUESDAY 28th MARCH 2006

Question 1

1. H a s the Minister consideredor consulted the contentsof the Price WaterhouseCoopers(PWC) report of 31st January 2006, entitled "Analysis of the responses to the second consultation document on the States of Guernsey future economic and taxation strategy", and, in particular, section 5.4on the taxationof Guernsey resident shareholders?
2. if s o,what consideration, if any, has hegiven to theevidence presented in thereportbyPWC that look- through, or attribution provisions -

• require ..substantial policing and anti-avoidance legislation... an unprecedented level of disclosure by Guernsey taxpayers.. (and) are likely to prompt a major change in the culture of

tax compliance there are significant legal obstacles that could potentially render attribution unworkable and expose the States to judicial challenge. Our understanding (based on discussions with legal

experts) is that an attribution regime is potentially very vulnerable to challenge under both company law and human rights law.

• it is likely that enforcement of the attribution rules would require provisions forcing the company to act as agent for the resident shareholders in certain circumstance. It is doubtful that such

provisions would comply with the (EU) Code of Conduct (on Business Taxation)?

3. W h atlegal advice, if any, hasthe Minister received concerningthe vulnerability of "attribution" to legal challenge and non-compliance with the EUCodeofConducton Business Taxation and if hehasnot sought any, the reasons why;ifhe has received legal advice, whatdidit state?
4. In the light of the Guernsey decision to abandon attribution for a distribution-onlysystem to recover tax from local shareholders, will healsoreconsiderandreview the proposals for look-through?

Answer

1. Y e s.
2. O v er the past fewmonths I have been reviewingthe detailed proposals relating totheimplementationof the 'look-through'arrangements,and this has led metoconsider carefully the fundamental principles for the attribution of profits. A consultationpaper will bepublished in April2006, setting out in some detail the proposed arrangements,whichrepresent a significant refinement of the originally agreedpolicy,to reflect the practical considerations ofimplementing a scheme to recoversomeor all of the profits which will no longer fall tobetaxed directly onto companiesfollowing the implementationof0/10%.The consultation paper is basedon detailed analysisof the options and takes into accounttheviewsofexpert practitioners such as thoseexpressed in the PWC Report to which the questionrefers.
3. T h e Codeisan internal EUmechanism and a political process of peer review with whichwehaveagreed to co-operate voluntarily. It does not have a legal form andagreementwithinthemeaningof the Code is reached byconsensusofMember States and parties associated to it. We reached such anagreement with the EUinJune2003,withthe full engagementoftheU.K.Governmentwhichhasclearly indicated its support  for  our proposed  arrangements,  including the 'look-through' mechanism. Furthermore, the

proposed look-through' arrangements are in the realm of the personal tax base, and Jersey has a right to consider

ways of safeguarding that tax base  as a  response to the unintended consequences of 0/10 which migh otherwise allow for tax avoidance opportunities to Jersey resident shareholders of companies.

4. S e e (b) above. Question 2

Will the Minister inform members what progress, if any, has been made in reviewing the "20 means 20" proposals and when he intends to bring fresh proposals to the Assembly?

Answer

I am currently in the process of reviewing the options for implementing the agreed principle of raising more tax from those on higher incomes in the light of more up-to-date income forecasts and further detailed analysis. Revised proposals will be  presented to Members for their consideration before the summer recess.

Question 3

1. W  hat consideration, if any, is the Minister giving to the protection offered to fee paying schools from the impact ofGSTonschoolfees and will consideration also begiven to how this compareswithmedical bills and prescription fees?
2. W h at conflict exists, if any, for the Ministeras a governorofone of the private schools in consideringthe matter outlined in (a) above?

Answer

1. I a m well aware of the valuable saving to States expenditure  provided by the  fe-epaying schools which educate a significant proportion ofour pupils. GST, even at 3%, does slightly increase the burdenon parents who are already makingsacrifices to provide that education for their children. It is not strictly comparable with medical bills and prescription fees, but, aswiththelatter, there may be a need to seehow any potential correspondingrecompense or delivery canbestbeprovided.
2. I have made my position as Governor/Trustee of two Church schools quite open in the Members' Declaration of Interests. I have made it clearto the two schools that I adhere to the agreed States policy of implementing a 3%rateofGST with as few exemptionsas possible, and the schools concerned have both acknowledged this. Should the mattercome up for debate in the States I would again makeclearmy possible  conflict of interest (eventhough I would receive no direct pecuniary gain) and would withdraw from a debateon that aspect.

Question 4

Appendix IV of the Price WaterhouseCoopers (PWC) report of 31st January 2006, entitled "Analysis of the responses to the second consultation document on the States of Guernsey future economic and taxation strategy" shows a table illustrating the schedules of the Isle of Man proposed taxation rates. Will the Minister produce the equivalent table showing his proposals for Jersey corporate tax rates, and where differences occur, will he explain to members the reasons for such differences?

Answer

The rates for the Isle of Man shown on the PWC document have not been fully reflected in their actual budget proposals. However, the consultation document to which I referred in answer to Question 1 will contain the most

up-to-date tax rates available for other similar jurisdictions.