A FEW weeks ago I wrote that Guernsey’s zero-10 tax regime faced a potential Exocet from powerful countries objecting to anybody charging a zero rate of corporation tax.

It’s now clear that missile has struck home.

True, the final finger on the launch button was the EU rather than the G20, but the result is much – although not exactly – the same.

Our tax system will need to be radically reformed yet again.

Ironically that may be no bad thing.

Of course, the move to force Guernsey, and others, to change is an abuse of raw power by those wanting to force us to increase taxes.

They’re doing it simply because it’s in their interest and because they have the power to do so.

While our old tax system was discriminatory, predatory and unfair, our new one isn’t.

It’s just very, very competitive – almost suicidally so. No one likes being out-competed, so the use of international muscle power to take out those whose tax offer they just can’t match is hard to resist.

On the other hand, while it amounts to strong-arm tactics, it might actually help us.

Why did we bring in the zero-10 regime?  Partly to comply with international codes of practice, of course, but other tax structures such as the ‘flat 10’ would have done that too.

What really drove us to a standard tax rate of zero on business profits was that the Isle of Man and Jersey had already decided to do so.

We were scared of losing out.

We had to be in a race to the bottom, whether we liked it or not.

By putting in a ‘false floor’ to that process the bigger countries may actually help all of the Crown Dependencies – even if it is a constitutional outrage.

However, we shouldn’t become too sanguine.  Some pretty scary times lie ahead.

We now know that our present tax regime, and those of our main competitors, is not acceptable to the European Union.

What we don’t know is what is acceptable.

It may an opportunity to reap a little more revenue from the business which is done in the island, particularly from non-locally owned companies, while still remaining pretty competitive. However, if we get it wrong the potential risks don’t bear thinking about.

One positive to come out of this crisis – and that’s what it is – is that the three Crown Dependencies intend to work together.

That is what they should have done last time, but they were far too obsessed with competing among themselves to do so.

To be fair, that was hardly Guernsey’s fault.

As soon as an EU code of conduct on taxation was mooted, the IoM piled straight in with the announcement that they were going for a zero rate of corporation tax.

Jersey soon followed and left Guernsey with nowhere else to go if they didn’t want to lose their competitive edge.

It’s hard to escape the conclusion that our Manx friends felt they could steal a large slice of offshore finance business from the Channel Islands by setting corporation tax at a rate which they believed we couldn’t match.

With £300m. in receipts from their VAT arrangement with the UK, taxes on business profits were simply less crucial to them than they were to us.

Now their world has been turned upside down, and as there is a question mark over their VAT receipts as well, they must be feeling pretty sick with themselves.

This time around we need to work hand in glove with both the IoM and particularly Jersey.

Of course, we will always be competitors – assuming we can hang on to our biggest industry – but that doesn’t mean we can’t co-operate over matters of common interest.

What is the way forward?

The answer depends on two unknowns.

Firstly, what sort of tax regime will be acceptable to the EU?

Secondly, will that code of practice be enforced worldwide or just within the EU’s sphere of influence?

If the EU is saying ‘you must have a minimum level of corporation tax of 10%’, we could probably live with that.

However, if they are saying ‘any tax levels lower than our own are unacceptable’, then we have a big choice to make over whether to comply with such a patently unfair and damaging demand or risk their wrath by refusing.

Fortunately the former stance is more likely than the latter as even big countries like to compete for business in a way which complete tax harmonisation would make impossible.

The second question is equally important.

If the whole world has to renounce zero tax rates because of concerted pressure from the OECD, the G20 and the EU, then at least there would be no more competitive place for our business to relocate.

If, however, the EU has taken a header, and is acting alone, the dangers are obvious.

No more zero product here but it will still be available in the Caymans and the Virgin Islands.

The stance of the Crown Dependencies should be that they are more than willing to co-operate with reasonable demands, but ONLY within the context of a level international playing field.

‘When Switzerland and the Caribbean do it, so will we.’

In my column a few weeks ago I predicted a white-knuckle ride and it seems that has now begun.

We are entering a scary period of uncertainty. There is the potential for complete disaster and yet the opportunity to actually improve our lot.

Nobody really wanted zero-10, it was forced on us by events.

The resulting loss of corporation tax has resulted in higher personal taxation and pressure on expenditure, which looks likely to cause significant damage to local services.

Our competitors are in similar boats.

We must turn this very serious threat into an opportunity to address those shortcomings.

There is a chance to remain as competitive and thriving international finance centres, while reaping more benefit from that activity than we do now, and – hopefully – satisfying international standards.

We must insist those standards are reasonable.

We must work with other interested parties, but most importantly the whole of our own community must work together.

In the face of such a huge challenge and enormous potential economic loss this is no time for tribal warfare and finger pointing.

All the best brains in Guernsey must input into finding the best way forward.

May you live in interesting times!