As a question mark hangs over the island’s corporate tax regime, Peter Roffey explores the best strategy regarding competitiveness – and how it’s crucial that Guernsey is more appealing to businesses than its rivals…

WE’RE all being asked what sort of corporate tax regime we want for the island, but really we already know what the outcome will be. If we don’t end up taxing company profits at a flat rate of 10% – or something very similar – then it will be a bigger surprise than North Korea winning the next World Cup.
That doesn’t mean the consultation process is pointless. The chief minister has already said he is convinced that our new corporate tax regime will end up almost identical to Jersey’s. The key word is ‘almost’. The more similar the tax offer of the two competing jurisdictions (and that’s just what we are, despite the worthy attempts to work more closely together), the bigger the minor differences will loom in the minds of those looking to put business in the Channel Islands’ direction.
The real trick is going to be making Guernsey’s proposition look shinier and more attractive than our competitors’ without risking falling foul of any international code of conduct. How to do that is a tricky question and will lie in the fine detail, which most of us would overlook but which will be important to canny potential investors.
The very fact that it is such a technical, almost arcane issue means that most of us may have little to contribute on that level. We can give our general views, but it will be up to those steeped in the minutiae of tax systems to help fashion the finished article. It really is time for business organisations like Giba to prove their worth by helping to protect their own members’ interests and the health of Guernsey’s broader economy.
Their only problem is that they will have to make their input over the next few weeks without knowing exactly what the other Crown Dependencies have in mind. The fact that Guernsey has been spared the sort of EU cross-examination that awaits Jersey and the Isle of Man is a double-edged sword. It would be churlish not to congratulate all those responsible for Guernsey being treated more favourably, but it means we have moved to ‘stage two’ ahead of our rivals.
On the plus side, that should provide certainty for local businesses earlier than in Jersey/IoM but the downside is obviously second-guessing our rivals’ intentions. One gets the impression that Guernsey and Jersey have been working pretty closely on this project behind the scenes but that the Isle of Man could be keeping its cards close to its chest. That makes it a tricky game of poker to play.

Of course, one strategy would be to go for the most competitive package we think the EU compliance group would allow us to get away with. That would make it far harder for the other islands to trump our offer without falling foul of the regional super-power. The problem is that too many compliant yet generous give-away clauses could leave the island badly short of revenue.
The world has changed beyond all recognition since Deputy Trott referred to the black hole turning grey and assured us all confidently that natural growth would soon fill it. Economic growth has proved hard to come by and the flip side of the strategy – spending constraint – very difficult to achieve. As a result, the States is strapped for cash.
So which is most important – keeping a competitive corporate tax offer, or raising revenue to fund government spending? One could have a long philosophical debate over that.
Being passionate about public services, my instinctive position is on the left wing of that argument. However, sometimes logic has to trump gut feeling. The reality is that Guernsey has a strong and yet fragile economy, heavily dependent on one dominant sector. Put that at risk by being uncompetitive and, far from increasing revenues through higher taxation, we’ll commence a long period of economic decline and with it a steady reduction in tax take.
In other words, expect the final corporate tax package to be very competitive indeed, with the individual taxpayer – that’s me and you – having to stump up more money to plug the structural deficit. Hopefully that won’t include a ‘goods and services tax’, which would hit the poorest the hardest.
The real hope must be that with Jersey and the IoM in similar budgetary predicaments, some sensible horse trading has gone on behind the scenes so that Guernsey can tax companies reasonably and moderately without haemorrhaging business to the other islands.