Figures for the number of tax assessments challenged by the Comptroller of Income Tax along with the tax recovered for the past 10 years

1240/5(5680)

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

ANSWER TO BE TABLED ON TUESDAY 12th OCTOBER 2010

Question

Notwithstanding his answers to oral questions on tax avoidance on 28th September 2010, will the Minister now supply the figures requested for the numbers of tax assessments challenged by the Comptroller of Income Tax under the provisions of Article 134 of the Income Tax (Jersey) Law 1961, along with the tax recovered for the past 10 years?

Will he further confirm –

1. that all of these caseshaveconcerned the conversion ofrevenue into capital;
2. that no cases have been broughtunderanyof the 6 other categories of taxavoidance ra ised in my question;
3. whether "deferred taxation" for companieshas a role in the Jersey taxation system, and

if so, to what extent this has the result of reducing tax returns from companies?

Will he also state what the effective rate of taxation of Jersey companies was for finance and non finance companies in the 2008 assessment year and what the estimate of the effective rates for these sectors is for 2010?

Answer

The Comptroller can only provide details for the years 2004 to 2010 (to date) as 2004 was the first year detailed statistics were recorded. No records have been kept of actual tax recovered in each case.

Total number of tax assessments raised = 2,140

Amount of investments on which Article 134A has been applied = £170 million

1. All of thesecaseshaveconcerned conversion of revenue into capital.
2. The provisions of Article 134A have been used in other cases but have not necessarily required the Comptroller to raise anincome tax assessmentto counteract the loss or reduction of tax. Professionaltax advisors regularly approachtheComptrollerfor tax rulings and confirmations of the tax treatmentof,for example, newcompany structures, re-structuringorother tax planning schemes.The Comptroller does warn sometaxadvisors that he would regardthe structure, re-structuringorothertax planning schemeas an avoidance transaction onwhichhe would invoke Article 134A and that would be sufficient for the advisor to seekan alternative tax planning scheme.Thisdeterrent effect isunquantifiable.But it doesexistand remains veryimportantin deterring individuals from avoiding orreducing their liability toJersey tax. The Comptroller does not keep a central data base of such tax rulings, all such rulings being kept in the individual file concerned once the ruling ismadeand the case settled. Such rulings may well have involved one ormoreof the categories that the Deputy hasidentified.
3. It isnot absolutely clear what the Deputy means by "deferred taxation ". But if he means deferral' of tax under the deemed distribution regime for trading companies,deemed interim dividends are notassessedto tax on the Jersey shareholder until theendof the company'sfollowing financial period. This means that the first full year whendeemed interim dividends will be declared will be the yearofassessment 2010. Sovery little data is available at this time to measuredeemed interim dividends.However, the Comptrolleris generally aware from professional tax advisors that manyshareholders are withdrawing the majority,or all, of the profits outofthecompany.This appears to be for a numberofreasons:

1. T heshareholder has to withdraw the profits from thecompanyas that is his only ormainsource of income.
2. T heshareholderwishes to keep his tax affairssimple and avoiddeemed interim dividends and in turn avoid increased compliance costs.
3. T heshareholder does not wish tobuildup tax due on undistributed profits at somepoint in the future. He would rather keepup to date bypaying the tax heoweson his company's profits yearby year.

Effective rate of taxation of Jersey companies for finance and non finance companies in the 2008 year of assessment:

Finance companies and non finance companies – 19% - 20%

IBC (finance and non finance) –  between 0.5% and 2% but 30% on non international activities, with a designer rate of more than 2% available for international activities. [Note that the IBC regime was removed and is no longer available to new companies. Those companies which currently benefit from this regime can only do so until 31 December 2011, as agreed with the EU Code Group. They will then revert to either finance or non- finance companies and therefore be subject to tax at the relevant rates applying to those companies.]

Estimate of the effective rates for these sectors for 2010.

Finance companies – 10%

Non finance companies – 0%

IBC - finance and non finance grandfathered' to 2011 - as above

[Utility, property development and property rental companies – 20%. IBC companies – see note above]