Dependencies ‘should ally on taxation’
Monday 13th December 2010, 2:29PM GMT.
GUERNSEY has called for Jersey and the Isle of Man to now join it to find a replacement for zero-10 that benefits all three islands.
Chief Minister Lyndon Trott yesterday said the UK had made its position on the tax regime clear and the islands should now look to move forward together to find a solution.
‘It is important that the outcome of this process is that the Channel Islands, and preferably all three Crown Dependencies, end up with broadly comparable regimes,’ Deputy Trott (pictured) said.
‘HMT’s statement to the media has made its view of zero-10 quite clear. Its full support of Guernsey’s approach has been equally clear’
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HMT says they don’t like the tax system, so the Bailiwick rolls over and asks how high we should jump?
Pathetic.
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Join the real world Alderneyite. The reality of the situation is that Guernsey has got it right on this one, Jersey and the IoM have got it badly wrong. Picking a fight with the UK over zero-10 would be an act of madness. Instead, we and the other crown dependencies should see this as a golden opportunity to ditch the tax regimes that created our black holes in the first place. Guernsey is leading the way out of this mess if only the others would see.
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When the uk goverment says jump guernsey has to jump,fact of life im afraid.
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How can guernsey (get it right and lead the way)when it was the one one who got it so miserably wrong in the first place ,very short memories some people have got ,the financial experts of two years ago were adamant and not a little arrogant that there was no other way to go ,utter cxxxp .
even if they had done nothing,. they would be in a better place now to sort this out, but we seem to be hearing from our leaders that it’s not their fault that we’re being told off by everyone who looks enviously at our situation. They were told by the majority of the working people in guernsey at the time, that zero 10 was tantamount to telling the lodger who pays the bills that he need not bother to contribute anymore, and we ended up with large holes in both feet ,don,t leave this to the financial big heads and top statesmen to sort out, get yourself round to a few working mens cafes and get some practical advice because when this all goes wobbly ,the f,b,h’s will scoot off back to chorton cum hardy on the wold shire and leave us to it ,so at the risk of offending someone who couldn’t care less about us ,come up with a system that benefits us (similar to what we had before 10 or even the same one)Do others well before they do it unto you !!
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arapaho – I think that you are forgetting that Guernsey did not invent zero-10 and did not think that it was the “only way” based on the merits (or de-merits) of the system alone. The reason why it was felt that there was no other way to go was because the IoM was doing it and we did not want to lose business to the IoM.
Guernsey was a little reluctant to go down the zero-10 route but felt it had no choice (that is debatable, but your comments above do not seem to take account of this context).
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arapaho
I don’t want to be in danger of rewriting the history books but didn’t we HAVE to go down the zero 10 path because the Isle of Man started it?
With 20-20 hindsight perhaps we did jump in a year too early but we appeared to be in danger of losing several of our employing companies at the time
Only Deputy Matthews warned that it was too early
Deputy Matthews for Chief Minister
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Exactly Ray and Terry. The IoM led the three crown dependencies into zero 10 – Guernsey has positioned itself well to lead us all out.
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Ray, Terry – Ireland ditched their “offshore” companies first (under EC pressure).
I don’t think there was any reluctance whatsoever when Laurie Morgan declared that we were going to have zero-ten, come hell or high water, back in 2001 (I think).
He viewed it as a proactive triumph, not a reluctant, grudging following of IOM and Jersey. Nailed our colours to the mast, then and there. Kneejerk reaction without consultation. Date was set around the same time.
No matter how much “consulting” took place with interested parties afterward, Laurie wasn’t ever going to change his or (his then protege) Lyndon’s minds.
It all came down to how the policy “might look” to decision makers in the finance sector (who apparently don’t use thinking accountants to make these decisions for them), whilst wholly ignoring how the policy might play to the (presumably completely stupid) EU/OECD that were driving the change.
There was back-slapping aplenty about how we’d wrong-footed them.
One heck of an ego trip.
Ray, Terry – IOM and Eire also have and had VAT as a backstop, Jersey were always going for GST. If we were in the race to the bottom, then we needed the VAT element. I would not be surprised to see the introduction of VAT/GST now, in order to preserve the zero rate.
Again our early declaration for 10% may look pretty stupid if Jersey up the GST rate and they and IOM stay with zero, to include all their local companies.
It’s all to play for.
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Bob
We could actually go zero-zero for all companies if we wanted to, and instead go with GST to replace the lost revenue. It WOULD be EU-compliant (even Richard Murphy admits that), but it would be foolish and naive to believe that it would be remotely acceptable to the EU. Don’t forget that it is the “spirit” of the Code of Conduct which they are more concerned with these days.
It still wouldn’t surprise me if the blinkered politicans in Jersey and the Isle of Man were to go down that route, although the Isle of Man has little scope for doing it as its already got 17.5% VAT. Jersey on the other hand…
I think Guernsey should get on with implementing a territorial tax system immediately, with a 10% rate for all companies. Scrap the “offending” deemed distribution rules altogether. What would that mean ?
All companies with trading activities in Guernsey would be subject to 10% tax on their Guernsey-source income, regardless of who owns them. This draws in the likes of Boots re. their local operations. Investment holding companies are not “trading” and so the offshore industry is only affected to the extent that “offshore trading” companies operate here (fortunately there is next to none of that here these days). The result would be no material loss of offshore finance industry business and we would become EU code-compliant.
I think its hard to have a territorial system for companies without having one for individuals as well. The danger that this brings is that wealthy local residents could then park their investment assets outside of Guernsey and avoid tax here unless they remit the income. We would need to counter that, although at this moment in time with interest rates being so paltry, the tax leakage isn’t great and capital gains are not taxable anyway.
My suggestion would be to levy a Guernsey property tax ownership tax of 1% on the owners of all properties valued in excess of £500,000 (but based on TRPs to equate to that), and 2% on all properties valued in excess of £2m. That property tax assessment would be credited against the owner’s Guernsey tax account, so that if they are already paying at least that amount in income tax on their local earnings, or on their remittances of “foreign” income, then in effect they wouldn’t be paying the property tax at all.
As the tax revenue from investments held abroad is, to all intents and purposes, only going to come from wealthier residents, and most of those will be open market residents who do not have earned income locally, it mainly means that we would avoid the scenario whereby open market residents could live here, bank outside of Guernsey, not remit income to Guernsey and pay no tax here at all. If they own a £3m house here then they’d still be paying £60,000 per annum tax (based on 2%).
If and when interest rates rise and the pool of local residents generating significant investment income increases, then we may need to look at alternative measures to stop those individuals holding their assets outside of Guernsey. One option might be to just tax investment income at a lower rate to encourage it to stay here, but in the big scheme of things that’s not a huge issue.
I can see no downside to going down this route now, regardless of what Jersey or the Isle of Man do, as it would be neutral for our finance industry. If they wish to follow us, then that’s up to them, but with no impact to our finance industry we don’t have to wait for them to decide what they wish to do. If they want to engage in battle with Brussels and the UK then let’s make sure that we don’t get drawn into their battle with them. We don’t need to.
Its also worth making the point that with a territorial tax system there is very little reason why we couldn’t go for a 15% or even 20% corporate tax rate. The finance industry’s clients wouldn’t be affected, although some of the institutions here would be if they aren’t able to claim full relief back home for the extra tax paid here on their operations. That’s where Jersey or the Isle of Man could seek an advantage by taxing banks at a lower rate than here on their profits. I suspect that we couldn’t easily get away with taxing banks at a lower rate than other companies as a special category, but if we could somehow do so then that would be a very interesting possibility.
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David – some interesting thoughts there, and I pretty much agree with you.
However, when you say that a 10% rate of tax for companies would not affect the finance industry, have you considered the corporate general partners that are set up here to manage each limited partnership investment fund? Would not their tax be 10% as opposed to zero?
Either way, I agree that the negative impact would be minimal as the benefits for using Guernsey as a jurisdiction for investment funds are still there.
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David
Are you Arnald in disguise?
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Seen this David? You’re not the only one to be calling for a territorial tax system to replace zero-10.
http://www.thisisjersey.com/2010/12/09/why-not-move-to-a-territorial-tax-system/
Although I am not well versed on tax matters, instinctively I think I agree with you David because I can see the political writing on the wall. The bottom line is that if the UK is adamant that zero-10 is dead then it is dead. End of.
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Terry Langlois
That’s an interesting point. I suspect that such company would be deemed to be “trading”. But would it be trading “in” Guernsey or trading “from” Guernsey? Where is the source of its income? Might need a slightly different fund structure for such a situation. There’s bound to be a few such anomalies with any revised structure.
Ray
Most definitely not!
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David – excellent post.
I’d add that even if we did lose a little business to the other Islands would that actually be a bad thing?
Probably not. I think that stabilising the island in terms of population and also fiscally is a better target than ever increasing growth – which is currently unsustainable.
Also if we do get tipped the wink it would make Guernsey appear whiter than white while the others, potentially foolishly, take on the UK and EU and damaging what reputations they have left.
As you intimate its a win win for the Island.
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Terry
You’re right when you say that “Guernsey did not invent zero-10″. It was Gibraltar that came up with that idea. It was copied by the three Crown Dependencies, whereas Gibraltar in the end went down another route: ten per cent corporate tax rate for all companies except utilities.
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David
Thanks for clearing that up
I only asked because some of your 14/12 comments such as ‘wealthy local residents could then park their investment assets outside of Guernsey and avoid tax here’… and … ‘we could avoid the scenario whereby open market residents could live here,bank outside of Guernsey,not remit income to Guernsey and pay no tax here at all’
That sounds very similar to what Arnald has been telling us all for years,except in your scenario it is Guernsey,not the World’s poorest nations, who is threatened with losing tax revenue
Arnald for Deputy Chief Minister?
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Ray
Not quite…
If we had a territorial system, only taxing income which arose here, then it would be legitimate for Guernsey residents to park their investments offshore and avoid Guernsey tax, resulting in tax leakage through legitimate planning. Guernsey would need to replace that tax leakage with alternative sources of tax revenues. Every country is able to do exactly that if they so choose, in order to plug legitimate loopholes and “balance the books”.
What Arnald talks about is foreigners ILLEGALLY holding funds offshore and reducing their home country’s actual entitlement to the lost tax revenue. He is under the impression that a lot more of that goes on here than is actually the case. What I’m saying is that it would be perfectly legal for Guernsey residents to hold their investments outside of Guernsey under such a system, and so Guernsey would need to find alternative ways to replace that tax revenue.
You cannot equate tax leakage from a legitimate utilisation of a specifically-designed domestic tax system with blatant tax evasion.
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Right or wrong its cost Guernsey at least £100M
to jump high first.However Guernsey admitting a wrong doing early will allow it to continue doing wrong for longer, while it looks for its remedy,whilst the bad kiddies in the other Islands will get Slapped for the Challenge.We came to Guernsey,able to make Money from your ancient Banking Regulations, well regulated,only in the Banks favour.Its a fact of Life as financial services has been able to dictate how you should run your Island in our favour that the Island will become more of a target proportionally to its sucess.When the Brown & Green hits the Fan we’ll leave & you’ll carry the Can
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David
To be fair Arnald has not only talked about illegal funds being held here, he has also talked about what you are saying, but he says that tax avoidence is imoral and someone has to pick up the tab? which is what you are suggesting?(pick up the tag) so he is right in a lot of what he says.
And if we were to see our taxes rise because of leakage i think a lot more people would take more notice of Arnald and how it effects the less well off.
David you say
“He is under the impression that a lot more of that goes on here than is actually the case”.
Does that not suggest that it does go on then?.
And if it is going on it must mean you dont catch them all which would also suggest that if some are getting through then you cant really know to what extent it is going on?.
Hope that makes sense.
Ray great posts.
Ray for chief minister.
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David, remind me of why it was that you supported zero-ten? Wasn’t your argument (along with many others) that any rate over zero was bad because institutions looking to set up here would be “scared off” by a rate higher than Dublin/Douglas/St. Helier? wasn’t that the clincher?
So what’s changed? Won’t this rate “look” higher than zero? Or have banks suddenly discovered maths as a predictive tool?
EU have tolerated competitive zero rates elsewhere (Belgian CGT), but not ring fencing. Should Jersey and IOM stick with zero and “mean it” – i.e. no attribution to local shareholders, then the 10% declaration by Guernsey could cause problems if not limited territorially. I don’t see how a zero and “mean it” system breaches the spirit of the code. An abandonment of corporation tax, or the itroduction of a universal zero rate is a matter for them. OECD/EC never attempted to interfere with our 20% rate on the grounds that it was lower than theirs, did they?
How is it that “the territorial system” never even got onto the agenda last time around? In whose interests was it stifled? Who said it was too hard?
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Bob
“Territorial” wasn’t properly considered originally, presumably because sufficient encouragement was given by the UK and EU re zero-10 to proceed on that basis. A 10% rate on a non-territorial basis would be fatal for Guernsey’s finance industry. 10% (or more) on a territorial basis could work exceptionally well.
Yes – arbitrage between the rates applicable across the three islands would almost certainly affect the decision by the banks as to where they will locate their operations. That’s going to be a key factor in setting the rate. If all 3 went for the same rate then such arbitrage will disappear.
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bcb – the difference is that David was talking about a territorial tax system – in which overseas earnings are not meant to be taxed and so it is entirely within the intent of the tax system that earnings on money overseas be outside its reach.
The UK does not have a territorial tax system and seeks to tax overseas income of its residents. So a UK resident doing what David suggested would still be liable to pay UK tax on the money that they place overseas – so the only way to avoid doing so would be by evading tax (or severing the beneficial ownership).
The key is that Arnald seems to assume that a lot of people are simply hiding their money offshore and not declaring it (and that our industry relies on this abuse), whereas those of us closer to the action dispute that this is any more than a small minority that slips through the checks in the system – and that the industry does not rely on or seek to facilitate abuse at all.
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David/TL
I also make clear that the use of aggressive tax aviodance structures are morally reprehensible. They exploit the lack of a territory to keep tabs on transitory cash and use the legislation of other jurisdictions to avoid tax compliance in the jurisdiction that is creating their wealth.
Not paying tax due to an authority using artificial loopholes is still de facto theft.
Even if you are ideologically impaired enough not to know what benefit taxations brings.
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TL
Recognising abuse is the eyes of the abused, not from the abuser. Using Guernsey as a conduit for either trading with or exploiting from such places as bent African corps/nations is pure abuse.
Only those that financially benefit from trading with those that control the abused will see this as a legitimate and beneficiary situation.
There is much developing world trade funneled through Guernsey. That makes you more wrong than you know. I can’t believe that even this basic point of exploitation is morally supported by those that call themselves intelligent.
Scratch the surface TL and find out what the cash is really influencing.
We destroy wealth by manipulation. Parasites.
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Good to see banks apparently can take in layered, structured argument these days. Better than last time round, it seems.
Territorial system may have very major problems, despite the confidence of some.
Double tax treaties may largely cease to be effective, because territoriality doesn’t necessarily interact easily with residency based systems. There would be a desire by other revenue authorities to tax that which we will not. While we have a zero rate applied on the residency basis for companies, and 20% on residency basis for individuals, that isn’t a big issue, and we fit into the international jigsaw without too hard a push. Change the shape of our “piece” and who knows?
I have noted that the current feeling in the industry is to place all our bets on this, spin the wheel and hope for the best.
As a “for instance” – there are hundreds of pensioners in Guernsey that currently receive UK retirement pensions and annuities free of UK tax because the tax is paid here. Adopt territoriality, and I suspect that the UK will start to withhold tax again, at up to fifty percent. Cross- border pension transfer rights may also be affected.
A “win” for some will inevitably mean a loss for others, and a trade off between Captives and QROPS could be in the offing.
Is the fulfillment industry here (territorially), or not? Here, I’d think, but not under territoriality – it’d go, with much of our post office, which in turn could risk air and sea links, in turn threatening…finance, perhaps!
No free lunch here, I fear.
Is there a possibility of a separation of personal and corporate income tax into differing (residence and territory of activity) bases, I wonder? Or a more radical shift to local GST/VAT in abandonment of any distribution or attribution rules.
Isn’t it exciting, guys!??
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“They exploit the lack of a territory to keep tabs on transitory cash and use the legislation of other jurisdictions to avoid tax compliance in the jurisdiction that is creating their wealth.”
I have tried to make sense of this statement. I really have. But it is complete gobbledegook. I cannot think of any scenario in which this makes any sense at all. Please provide an example of how this works based on the relevant tax laws.
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Bob
I’m confused by your last post. What existing double tax treaties? We’ve only got one, in practice, which is with the UK. Are you getting confused with TIEAs?
A territorial system would surely help with the Guernsey/UK treaty. The Guernsey resident person or entity would avoid UK tax under the treaty if the income in question has actually been subject to tax here.
Pensions are now taxed separately by the UK since, I think, 2009, when the UK gave up it’s taxing rights in UK pensions paid to non-residents.
Personally, I don’t think it’s necessary or probably advisable to have territorial tax for companies and non-territorial for individuals. Looks somewhat artificial to me and we should take the opportunity to make our tax system as robust as possible.
TL
I wouldn’t waste your time trying to understand what Arnald says. It’s all gobbledegook.
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TL
Do you ACTUALLY work in the finance industry? Like David, you make the assumption that the niche you may work in is the be all and end all of financial transactions. You base all of your arguments around this.
Where do the bulk of financial transactions originate? Why do they occur? When you’ve done your homework, compare and contrast with my statement.
I’ll probably only say this once in my life: but read the Daily Mail for starters
http://www.dailymail.co.uk/news/article-1339026/Britains-biggest-firms-moving-offshore-denying-UK-exchequer-100s-millions.html
Don’t think for a minute that Guernsey doesn’t provide the same services as explained there. It does.
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Terry
It is not unusual for Arnald’s posts to make no sense, in fact it is perfectly normal. He lives in a world populated by very few people, where the ruler and prophet is none other than Richard Murphy, who for some inexplicable reason is occasionally consulted by the Guernsey Press on matters of taxation.
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Arnald – you really have excelled yourself. To support your statement, you post a link to a Daily Mail article which (unsurprisingly) misses the point as much as you do.
Your statement was about apparently avoiding tax on trading profits by moving ownership offshore – that simply does not work. The example in the Daily Mail article is Boots – which cites the fact that the holding company was moved to Switzerland after its takeover by an Italian group. The Swiss holding company helps the ultimate owners, it does nothing for the UK trading profits. The article then reveals the real reason for the reduced tax bill – new bank borrowing. That would have reduced the tax bill even if the ownership had stayed in the UK. A classic Daily Mail red herring, curiously similar to your own style.
Then there is reference to Top Shop – the recent Oxford Street protests showed that people in the UK really do not understand the issue. The protestors object to Top Shop because it is owned by a resident of Monaco. There is no suggestion that Top Shop itself is reducing its tax bill as a result of being owned by a Monaco resident – because that simply is not possible. Top Shop is not avoiding tax. Mrs Green is avoiding tax by ensuring that she is not a UK resident. That is her choice, or do you really believe that she is morally obliged to pay tax in the UK just because she owns a UK business, even though she does not live in the UK or use its services?
As ever, I doubt that you actually know what you are arguing about, you just think you do.
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The Daily Mail article is atrociously written. And, surprise suprise, it’s featured on Richard Murphy’s blog (which is getting dafter and dafter and almost completely full of rubbish these days).
Does Arnald not have a mind of his own?
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The Mail article was an example of the types of transactions that the multinats create in order to exploit and abuse tax and legislative systems globally. As for how it’s written, hey, I don’t read it for a reason! The facts, however, remain the same. Artificial financial vehicles designed and adminstered by the OFCs around the world facilitate this leeching of taxable income. You can say what you like about Green or Boots, but it is the tax havens that allow this to happen. The loan interest contra is more competitive using places that can squeeze lower margins and have more ability to make bigger loans against capital. Why do you think most property funds operate out of secrecy jurisdictions? How do you think the Icelandic disaster was able to operate?
TL, once again you show that you are unable to see the connection between tax dodging and jurisdictions. It’s like a blind spot. It’s a three wise monkeys reality. Are you going to answer my questions? Who makes the vast majority of financial transactions through places like Guernsey, and for what reason?
Phil and Greg, the tax justice and transparency campaigns are far more widespread than Richard Murphy. Again you can only respond with ignorance.
Please explain why a campaign to help developed countries progress, that wishes to discover where the proceeds of crime are and that wants the markets to operate more efficiently is something to be ridiculed.
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Low regressive taxation creates jobs something the UK doesn’t understand !
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The Daily Mail should do an article on all the firms listed on the LSE that pay billions of pounds a year in tax (through stamp duty or fees to city institutions) but have no operations in the country (most of the miners etc)….
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David – I have used both the UK and Jersey ones on a regular basis over the years, but confess to not having had to use any others.
Not much clarity, I fear, but
My worry is in your sentence:
“The Guernsey resident person or entity would avoid UK tax under the treaty if the income in question has actually been subject to tax here”
Works now, as actually taxed – but at zero. If not taxed, then…….?
Having had another look at the singapore/UK treaty this morning, I am heartened to see that they get the same pension “breaks” (and specifically laid out, at that) that we do. Presumably, they (Singapore) tax them, though. Maybe I’m worrying over nothing.
The problem with treaty reading is that they only look at areas to relieve double taxation should it occur. I suppose I am more concerned about the impact of non-taxation upon the general UK attitude toward Guernsey. If we aren’t taxing the world income of “residents”, even at zero, that may encourage to them to impose withholding taxes (exempt gilts, perhaps), or revise rules for branches, agencies and establishment. It could be a hassle for them to do it now, as there are DT provisions covering anything they’d tax – but if we (and Jersey, and IOM, and others) stop taxing worldwide income, it may become worth their while to alter things at their end, or treat the dependencies as avoidance regimes for certain taxes. If so, then we will have turned ourselves inside-out again for nothing.
I think we really must be talking to Jersey and IOM on these things, and UK.
If we do not tax pensions because they don’t arise in our territory, then will the UK continue to not tax them, having given all sorts of reliefs on the contributions? Perhaps. Hence the suggestion of splitting Corp and Personal Inc taxes.
There is also the question of local owners’ dividends from non-local companies and investments.
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Lower the tax rates and you retain more revenue – this is what Thatcher discovered. 20% tax is not worth hiding from whereas 50% is.
Build a small but successful company in the UK, draw a modest salary from your business of say 50K and you’ll have a rate of 41% tax plus 13% Employers NI – 54%. Makes you wonder why people bother.
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Hello
Not sure where your UK corp tax comes from. Nor your Thatcher claim. Certainly not from fact or history.
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Arnald
Thatcher lowered the top rate of tax and home came the high earners forced out by 90% rates.
What do you expect to happen if you over tax? Those that can afford to walk away will do. High progressive rates of tax might make you feel better but they really are non productive.
My UK Income Tax rates are correct. I didn’t mention corporation tax but if you want to know you can find them on the HMRC website.
So now we’ve put that straight have you any further pearls of wisdom?
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Hello
Pure revisionism. The vultures ‘came home’. Unemployment and riots ‘came home’. More recessions and necessary nationalisations ‘came home’. UK assets were sold off to cronies and the economy was propped up with North Sea Oil and Gas.
The scenario for the financial industry to wreak havoc on normal people was set.
There is no question that over taxing is counter productive, but exactly who is advocating that?
And if £50K is modest for a small business wage, then you may need to look at your model’s salary structure.
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Hello – a progressive tax regime doesn’t have to mean pre-Thatcher Labour Party 90% tax rates.
Our tax regime could be made more equitable (but still competitive) by simply increasing the personal allowance and adding a couple of % onto higher levels of income.
For example, Guernsey could implement 2 bands:
- income below £50K 20%
- income over £50 25%
This means that someone with a £100,000 income would only pay £2,500 more in income tax per annum – some of which would also be offset by a higher personal allowance.
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Bob
Under many double tax treaties one party gives up the taxing rights for specific income and gains, even the other party chooses not to tax that same income or gains. Belgium is a prime example. It holds the taxing rights on capital gains of movable property (ie shares) under the UK treaty, but the Belgian tax system simply doesn’t tax such capital gains, so no tax is payable in either country. There are lots of examples of that. The term “double tax treaty” is a misnomer as treaties don’t just prevent the same income and gains from being taxed twice, Bizarre, but that’s how it is.
Accordingly, tax doesn’t always have to be actually paid in Guernsey for a transaction to be covered by e Guernsey/ UK treaty.
The UK basically gave up it’s taxing rights on pensions paid from the UK to overseas residents about 2 years ago. The UK accepts that the country if residency will tax that pension income, even if the pensioner lives in a nil-tax country, ie Dubai, where no tax is actually paid. That’s why they are so relaxed about QROPS as there is no UK tax leakage when the member is already non-UK resident. When the member receives his pension from a Guernsey QROPS then the member will be receiving taxable income in his new country if residence, so that country still gets the same tax revenue as it would have done if the pension had been paid from the UK,
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Arnald
Can you not remember the 70′s? I was there and the lights kept going out.
Why do you feel obliged to tell me to review the salary structure of my business? Your arrogance is astounding. What do you think one should expect to earn after putting everything into starting a business, taking the risk, working 60-70 hours a week, creating 12 full time jobs? Indeed it is modest and then one waves goodbye to more than half.
You ask who is over taxing? Don’t you think a person should be allowed to retain at least half of their income?
Tell us about you Arnald? You have an opinion here but we know nothing of you. Enlighten us? What tax do you pay? Do you pay any?
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Paul le Page
I appreciate your point but I’m not sure what would be gained by creating a two tier system. Especially if higher personal allowances were introduced. Would the total, overall, tax take remain static?
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Hello
I haven’t mentioned a rate at any time. You are introducing the rate. I merely point out that any decent civilised country should have progressive taxation. It reflects the ability of the higher earners to take more of the burden to provide the revenue needed to improve society.
You can’t moan about a rate and then deliberately proceed to pay yourself above the threshold. It’s arrogant of you to insist that just because YOU earn that much then the rate is too high.
Like most people I am PAYE. I don’t enough to access the privileges of legal and accountancy scams.
The more people avoid and evade tax, the higher the rates will be set. So for the sake of a few, the majority get clobbered.
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Hello – Yes that would be a danger, it would all depend on the rates that were set along with the level of personal allowance increase. The rates I used in my post were purely hypothetical and should only be used as an illustration of a principle.
You’ve got a point though. Given the already competitive personal allowances and 20% rate, perhaps there wouldn’t be a need to increase the personal allowance at all but simply implement a tiered system. It would certainly be a more equitable system than GST, for example.
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Arnald – Being PAYE is no indication of income.
I certainly can complain about a rate of taxation for that is the nature of a democracy surely? Why do you think I should not just because you deem it a fair rate?
The vast majority of jobs are created in the private sector and the last thing you need are disincentives to business. You didn’t answer my question as to whether you think someone should be allowed to keep at least half their income?
I wonder also, as you went into a bit of a traditional anti-Thatcher rant earlier, whether you would agree that the 20% rate you enjoy now should go back to the 33% I paid in the early 80′s on a salary of £5,200? Are you paying enough to improve society Arnald?
As you’re on PAYE I assume you’re not in Guernsey?
Paul – The last thing we need is GST and all the associated costs to both government and business in collecting it. I do feel that The States probably has enough money to spend but it needs to spend it wisely. Recessions do force individuals, companies and governments to look closely at what they are spending.
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Hello – Totally agree with you about GST
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Hello
It is if that’s your only income.
If you pay yourself knowing that a threshold is breached then you only have yourself to blame.
I’ve never mentioned any rate. You keep saying I do, but I haven’t said what’s fair and what’s not. It is a question for the government to set rates as determined by a democratic mandate to provide the services the electorate expects.
If then the richest avoid paying the correct rate then there will be a tax gap. Then the poorest will have to cover the shortfall. As taxes go up, the more will be avoided. Hence the necessity to change the behaviour of accepting avoidance as a recourse.
You can make whatever assumptions you like, but last time I looked I was in Guernsey and I pay tax as I earn it.
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Arnald
“If the richest avoid paying the correct rate” is actually the crux of my argument. If that correct rate is set too high they can, and will, move away. If the rate is reasonable they’ll stay and pay. As I understand it avoidance is legal but evasion is not. Move out of a high tax country and you have perfectly legally avoided paying tax there.
“If I pay knowing that a threshold is breached I only have myself to blame” I suppose you are right. I should make use of some perfectly legal vehicles to extract the profit and not have it taxed so highly??
If you’re in Guernsey why are you fretting about who pays what in the UK?
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David – the few DTAs I’ve looked at all seem to reserve the right to tax where the reciprocating country- Guernsey, say – doesn’t reserve. Whether UK chooses to exercise that right is a different matter. At present, they don’t seem to want to. There are always some holes. Presumably we are/ will be allowed to not tax every bit as much as UK is allowed to not tax. But we will need a new treaty, I think.
The UK were presumably relaxed on QROPS as most countries forming the QRO bit had treaties already, but UK was still deducting tax at source, and not having to give much back. This seems to be about labour mobility more than tax, but has been expensive for them.
I don’t disagree with the last bit of your 8:08, but I remain puzzled as to the reasoning behind the giveaway. We can have free cake, and eat it, and sell it as well. I’m not complaining, just very, very cautious. It does not seem a sound basis upon which to make any long term plans.
UK leakage to Dubai (no DTA with UK?) could be considerable. Tax leak on UK gross pensions paid overseas must be significant – up to 40% deductions foregone (would be 50% now). UK have expensively granted the reliefs, and we now get 20% tax (was nil, as UK rate was higher). Guernsey has benefitted considerably from the relaxation of the pension rules, at the expense of the UK. Is the UK such an attractive place for non-dom retirees, that it can recoup these tax losses from the incoming pensions of other jurisdictions/ returning expats?
I’m wandering a bit.
I can’t see the UK altering its general tax laws just for us, but if we and enough others move away from the worlwide income basis to an “arising in the territory” basis, then they just might, to defeat those that would seek to use our new regimes for avoidance. There comes a point when it seems immoral for the UK to just keep giving money away, and I begin to sympathise more and more with Arnald’s stance, that something must/will be done. Preferably by them (UK) rationalising their laws rather than us unilaterally deciding to allow everyone else to exploit them while we look on.
With this new “moral” coalition government in place and the UK in recession/suffering huge cuts, they cannot continue to throw away money like confetti.
The UK mandarins may have “welcomed” the declaration of a presumptive 10% rate to replace the zero; but they may not welcome it’s non-universal application within a territorial system. Jersey/IOM may have to move to a better footing in a universally applied company rate of zero with no attribution/distribution charges to local residents, as that would be seen as fairer. Maybe we’ll end up with both yet.
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Bob
What the UK is saying re. pensions is that once you’ve left the UK for more than 5 years they really don’t care about collecting tax on your previous UK pension, even though they originally gave tax relief on the contributions. Not sure why, but that’s what they’ve decided. As a result, it makes no odds to the UK whether the pension scheme member now lives in a country which actually subjects that pension income to tax. By that stage the UK simply doesn’t care. Odd, but true.
The UK is itself moving towards a territorial tax system. The recent amendment to the CFC rules whereby UK corporates will only be taxed at 8% on the profits of their foreign subsidiaries is a very clear example of that. The UK is doing this so as to protect its corporate tax revenues, and to prevent the massive outflow of UK corporates to places like Switzerland where they can avoid tax on foreign subsidiary profits. A territorial tax system has always been viewed as EU-compliant (even Richard Murphy said so, therefore it must be true !), and in the circumstances I think its very hard to see the UK objecting to us having a territorial tax system. Don’t forget that the nondom regime is also a type of territorial tax system, and other EU countries like Belgium and Holland also offer exemptions for certain kinds of foreign income.
I do agree with you that its seems inevitable that double tax treaties will have to have to be amended where a country operates a territorial tax system. It would be logical that the DTA would only be applicable to the extent that foreign tax in that “territorial” tax system has actually been paid. Even now, with no territorial system, the UK DTA has not been renegotiated by the UK to reflect the faact that Guernsey corporates pay a 0% rate of tax, i.e. taxable but at a zero rate. That’s surely only a matter of time.
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David – largely agree with your second paragraph. HMRC have a paper out on Corp Tax, which certainly suggests a move further towards territoriality. But that (to me at least) seems at odds with their pension surrender, where I would have expected a withholding tax, at least. Maybe they expect people to return to UK once they are bored with Guernsey/Jersey/Dubai!
The problem is that if they apply this move toward territoriality across the board – CGT, Corp and Inc Tax, then what would be left for us to offer clients that may give a fiscal advantage?
If they go down the route of taxing only the UK operations and investments of res corps and individuals, and UK ops of non-res, then they could be taking our international clients.
If UK thus steal a march on the rest of the EC, how long has the current view on territoriality really got any advantages for us? Will we end up with a territorial, zero rate system, or merey indulge in “detail arbitrage”.
Still watching Jersey/IOM with great interest.
I’d be far more comfortable with a VAT regime up and running, whether to preserve Zero (but mean it) or to cushion a move to an alternative (and preferably permanent) system.
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