From Charles Blampied.
DEPUTIES Southern and Tadier were right to question the Treasury Minister about the zero-ten corporate tax regime at States’ question time (JEP, 14 September).

The Minister’s response that the Deputies did not understand and needed to learn about the tax system was inappropriate.

The Business Tax Review presented to the States on 22 June by the Treasury Minister states: ‘Introducing zero-ten cost the Jersey economy in the region of £100 million.’ However, his response to the Deputies estimates the loss in tax revenue from zero-ten in the region of £15 – £20 million. Which is correct, I wonder?

Losses in tax revenue arise because:
• Businesses owned by non-residents no longer pay Jersey tax, as opposed to 20 per cent paid by such businesses previously.
• Financial services companies now only pay 10 per cent, as opposed to 20 per cent.
• Investment companies owned by discretionary trusts formed by Jersey residents now only pay a proportion of tax dependent on the number of beneficiaries resident in Jersey.

As a result, there is now a significant black hole in the Island’s revenue from taxation. The zero-ten corporate tax regime is a complex tax system that taxpayers and the tax office alike are struggling to understand and implement.

The previous system was simple and straightforward. All companies paid 20 per cent unless they had exemption as investment companies owned by non residents. All business profits from business carried out in Jersey were taxed at 20 per cent whether or not the owner lived in Jersey.

Compliance costs have increased significantly as a result, and no doubt the tax office has also had to allocate resources to the implementation of this complex scheme.

The zero-ten regime was first introduced in the Isle of Man and Jersey followed suit in a bid to comply with the EU Code of Conduct on Business Taxation. However, we know that some EU Member States consider that zero-ten may be in conflict with the spirit of the code. This is not surprising as zero-ten is complex and opaque. The zero rate is illusory, as shareholders are assessed to tax at 20 per cent on company profits unless they are non-resident.

The Treasury Minister is correct in stating that the names of Jersey businesses that now escape Jersey tax because they are owned by non-residents cannot be named for reasons of confidentiality. However, there has been a trend of Jersey residents selling substantial businesses to non-residents, who are no doubt attracted by the zero tax rate, and it is likely that this trend will accelerate. It is all very well seeking to attract non-resident investment in Jersey businesses on the basis that the investors will pay no tax at all. But what is the point if these investors make no contribution to Jersey society by way of tax?

Taxation needs to be fair and perceived as fair. Zero-ten means that locally-owned businesses paying 20 per cent tax must now compete against businesses owned by non-residents that pay no tax at all. This is manifestly unfair and should not be tolerated by the Jersey taxpayer.

I was disappointed to read that the Treasury Minister is ‘of the strong view that zero-ten should be part of the tax system’. This seems strange at a time when cuts are being made to public services to balance the books.

It is right that the minister should seek to get the best of all worlds by ensuring that the tax system is not detrimental to the financial services industry while seeking to satisfy the demands of the EU. But this should not be by way of zero-ten, which is manifestly unfair and detrimental to the ordinary Jersey taxpayer.