Changes to the record keeping requirements under the Income Tax Law
Wednesday 20 June 2012
Until 2007, there was no provision of the Income Tax Law that specified what types of records should be kept for tax purposes, nor how long those records should be retained for.
The Income Tax (Keeping of Records, etc) Regulations, 2006 introduced specific record keeping requirements.
For people who received income from a business or income from the letting of property, the specified records had to be retained for a period of six years following the end of the year in which the relevant income tax return was submitted.
All other persons were simply required to retain whatever records they had used to complete their income tax return for a period of two years following the end of the year in which the return was submitted.
The Regulations did not extend to persons who did not complete a Guernsey income tax return.
The Treasury & Resources Department made further Regulations (The Income Tax (Keeping of Records, etc) (Amendment) Regulations, 2012) on 28 February 2012. These Regulations are being laid before the States on 27 June 2012 with the intention that they come into operation on 1 July 2012.
If the Regulations do come into operation as intended, they will create additional record keeping requirements from that date.
Firstly, the Regulations will now apply to all persons, whether or not they are required to make an income tax return.
The Regulations also set out specific requirements for persons who receive income other than from businesses or from the letting of property, for the first time.
The requirements are that:
- records must be kept of all amounts received, arising or accruing and from whom they were received, arose or accrued, and the periods to which the amounts relate,
- documents which contain or may contain information relevant to any liability to tax to which that person may be subject, or the amount of any such liability, also have to be retained, and
- all supporting documents relating to the records and documents referred to above also have to be kept, including (without limitation) accounts, contracts, leases, licenses or other agreements, vouchers and receipts.
The periods for which the documents referred to in the bullet point above have to be kept are:
- where it relates to the income of a trust or foundation, for a period of six years,
- if the person concerned is a legal person (such as a company) for a period of six years,
- in any other case (such as an employee, someone living on pensions or someone living on investment income) for a period of two years.
In all of the cases above, the period for which records have to be retained runs from:
- the end of the year in which the relevant income tax return is submitted, or
- where no such return is required to be submitted, from the end of the year in which the record or document was created, received or obtained.
In addition, and for the first time, the 2012 Amendment Regulations also provide that where records or documents are retained outside Guernsey then the person required to keep and retain the documents must ensure that:
- they remain within his control and power, and
- they can be brought back to Guernsey if the Director requires to see them for the purposes of calculating or assessing a liability to tax, or if they are required to be produced and disclosed in Guernsey under the Income Tax Law, or any other Law.
Anyone who fails to comply with this requirement may be subject to a penalty of up to £2,500.
There are two principal reasons why the requirements on keeping records have been revised:
- The Income Tax Office is investigating a number of ways in which individuals with the most straight forward of income tax affairs may, in the future, not be required to complete a tax return each year. It is still important, however, that those persons should keep records of their income in the event that the Director of Income Tax considers it necessary to make enquiries into the tax affairs of those persons.
- In 2002, Guernsey made a commitment to the OECD to observe international standards on transparency and exchange of information for tax purposes. This is the main reason why Guernsey has been negotiating Tax Information Exchange Agreements ("TIEAs") and Double Tax Agreements with a number of countries in recent years. International standards in this area have continued to develop over the last decade. During 2010, Guernsey was subject to a Peer Review by the Global Forum on Transparency and Exchange of Information for Tax Purposes. Whilst the report that Guernsey received was very good, some minor deficiencies were found in the requirements in Guernsey's legislation relating to keeping and retaining records of financial transactions. In discussion with the Peer Review Assessment Team, Guernsey has decided to address these minor deficiencies by revising the Income Tax Keeping of Records Regulations.
Rob Gray, Director of Income Tax, said:
"At the Income Tax Office we are constantly looking at ways to improve the service that we give to the island's taxpayers and to reduce the burden of complying with income tax obligations. With reducing public service resources, one way to achieve this is to take away the need for persons with very straight forward income tax affairs to complete a tax return every year. If we do that, however, it is important that those persons must continue to keep records of their income, just in case it becomes necessary to raise enquiries at some point in the future. That is one reason why the Keeping of Records Regulations are being extended to cover all persons, whether or not they are required to send in a tax return. For the majority of people, such as employees, pensioners and those living on investment income, they are still only required to keep the records for a period of two years. It is only where income relates to a trust, a foundation or where the person concerned is a legal person (such as a company) that they will be required to keep records for six years.
We also live in an era when international finance centres, such as Guernsey, are often, very unfairly, criticised by other countries and international organisations. It is very important, therefore, to the continued well being of Guernsey's finance sector (and therefore Guernsey's economy) that we take all steps necessary to protect and enhance Guernsey's reputation as being a compliant and well regulated jurisdiction, by observing international standards in exchange of information for tax purposes. Guernsey performed extremely well in a very thorough review of its rules and procedures relating to, amongst other things, the need for persons in the island to keep records of financial transactions. Only some very minor deficiencies were found and these changes address those."
Issued by: R Gray, Director of Income Tax, Income Tax Office