Zero/Ten Design Proposals in R. 37 2005

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

ANSWER TO BE TABLED ON TUESDAY 16th MAY 2006

Question

Following the publication of the Zero/Ten Design Proposal (R.37/2006) on 5th May 2006, would the Minister –

1. i n fo rmmembers whether the newproposalsmean that the previous proposalsonlook-through have been abandoned?
2. g i v e members a breakdownoftherevenues that arenowexpected to begathered from eachofthetaxesor charges  contained in  the  new  zero/ten design proposal and,  in particular, state how much will  be generated from the Regulation of Undertakings and Development(RUDL) charge andwhetherthe new proposals to replace look-through will producethesameamountsasthe previous proposals?
3. s t a te whether the proposed RUDL charge is, in effect, a tax on jobs and what impact, if any, it is anticipated to have onjobcreation and economicgrowth in the non-finance sector?
4. r ea s s ure members that, as the proposalshavebeendesignedby finance experts, they have not been designed solely to suit the finance sector?
5. in d icate  whether the  mechanisms for Foreign  Incorporated Investment Companies will  meet the requirements oftheEUcodeon Business Taxation?

Answer

1. T h e previous proposalsonlook-through have notbeenabandonedbutmerely reduced in scopein aiming to strike the balance between the need for look-through' mechanismswhich allow for anti-avoidance provisions pertaining to personal tax payers (Jersey based shareholders) and both the practicality of administering  such  mechanisms and  the  wish  to  permit a  degree of re-investment by Island  based businesses consistent with oureconomicgrowthobjectives.
2. T heseare only proposals at the current time,so only a roughanalysis of the tax yield from theRegulation of  Undertakings and Development (Jersey) Law  1973, (RUDL), charge  has  been  undertaken. This suggests a yieldin the rangebetween £ 5 - 7 million.  If theproposals are agreed,theexact detail will be determined and the yieldcalculationrefined.For those whodo not opt totradethroughthe Limited Trading Partnership (LTP) vehicle andwho thereby become subject to the distribution provisions, I can confirm that eventually all the tax on their profits enjoyed by shareholders aspersonalincome will be collected, albeit with a timingdifference.As a consequenceofcontinuing look-through' on investment holding companies,and the tax chargedonthosewhonowchoose to trade through a Limited Trading Partnership rather than being subject to the distribution provisions for a zero rate trading corporate vehicle, itis estimated that overallincome in these areas will ultimately be broadly the same asunder previous outline proposals.
3. T heproposedRUDLcharge is not a tax on jobs but a charge reflecting a licence to operate in the Island. Where shareholder taxes are paid these can be used to reduce or eliminate theimpactof the RUDL charge.  This can occur either  through look through' to  the  shareholders of companies with  such employees,orbythose businesses registering as Limited Trading Partnerships subject tonormal Jersey Income Tax provisions. The primary intention behind the RUDLcharge is to ensure that thosewishing to set up businesses in Jersey, using the Island's scarce resources, butwithout Jersey connections,domake some contribution tothe running costs of the Island. This they will do either by registering asanLTP,or

by paying the RUDL charge; the choice is theirs.

4. The proposalshave been designed by people who understand the complexities of taxations systemsin Jersey and elsewhere. Like manyother jurisdictions, including the United Kingdom, Jersey has utilised the best expertise in both the public and private sectors to ensure that the 0/10 design proposals are the very best solution forJersey as a community.To have done otherwise would have been a dereliction of duty and I amconfident that the policy now presented for consultationgives a balanced solution to address both the competition issues facing us as well as ensuringvoluntarycompliance with Ecofin requirements. In particular, itendeavoursto level the playing field between those whocurrently pay their taxes to help supportthe running costsof the Island and thosewho, because of their location, would not. Accordingly, I can confirm that these proposalswerenotdesigned solely to suit the finance sector.
5. Yes. Thesecompanieswillbezero rate vehicles but will pay anannualcorporate residence fee,not a tax, in a similar fashion to Jersey incorporated companies. As this is a mechanism concerned with incorporation feesrather than a tax it is actually outside theremitof the EUCodeofConducton Business Taxation.