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Hundreds of wealthy residents are using legal loopholes to avoid paying any income tax in Guernsey, according to the deputy leading the charge for faster reform of corporate tax.
Deputy Charles Parkinson suggested that “some very wealthy people are putting their income producing assets into companies” and then taking a loan from the business when they require cash, thereby avoiding the need to pay tax on income.
Deputy Parkinson labelled that attitude “absolutely appalling” and “shocking” as he called for reforms to corporation tax which could eliminate those loopholes before the introduction of any consumption tax.
He presented his alternative of a territorial corporate income tax (CIT) system to Policy & Resources’ tax and social security package to a sold-out audience at St. Pierre Park yesterday evening.
He accepted that the Bailiwick in is an “unsustainable” fiscal position but said there is “no moral case” for shifting more of the tax burden onto struggling households, which has “increased significantly” since zero-10’s adoption.
However, he admitted throughout that he has “no idea” how much could be generated from a territorial system, or how much could be recouped from those avoiding tax since no-one knows how much is being concealed in this way.
But he encouraged everyone to take the forecast deficit of £100m “with a pinch of salt” and said he didn’t “attach much credibility” to an independent assessment of corporate tax options.
Pictured: Policy & Resources say if their package is passed by the States they will return in November with joint-Crown Dependency proposals to reform corporation tax. Above is Jersey's Liberation square and Weighbridge.
Deputy Parkinson also rejected suggestions from P&R that adopting a territorial tax system would render the financial services sector uncompetitive and put Guernsey in a unique international position.
He said one of the only growth sectors in the industry is funds and these would always be exempt from corporate taxes, with the OECD’s proposed global minimum rate of tax of 15% from 2024 also making this exemption.
He pointed out that over 30 countries within the OECD operate a territorial tax regime and it is therefore “very much the international norm”.
Deputy Parkinson fears the States will continue to lose out on tens of millions of pounds of revenue each year from corporates if it does not catch up with OECD rules, which are set to come into force in 2024.
When they do, large multinational firms will not be taxed the 15% rate locally because of the 0% rate. Instead that shortfall will be made up for in a separate jurisdiction: “The tax authorities in another country will benefit,” Deputy Parkinson said.
Pictured: Deputy Liam McKenna, seconder of the amendment, pleaded with Policy & Resources members to give residents “a chance”.
Deputy Parkinson also thought that removing focus from the Bailiwick due to its zero percent tax rate could only be a benefit and maintains that a CIT would be simpler to administer than GST.
“It’s hard to persuade people that Guernsey is not a tax haven when there is a 0% tax rate,” he said, adding that of the British people who knew about Guernsey a large proportion would link it to tax avoidance.
“That reputation sticks to us, it’s hard to dispel it … the 0% rate attracts unwelcome attention and undermines Guernsey’s standing in the world.
“CIT will reduce our fiscal woes, reduce negative attention, and provide a more stable bed for investment.
“It may or may not solve the fiscal deficit, but it is the right place to start and the right thing to do.”
Deputy Parkinson highlighted the totals which could be generated from companies would depend on how ‘Guernsey source income' is defined, which would be a task for a special purpose committee which would be set up if the CIT amendment is passed by the States.
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