Thursday 26 September 2013
The following statement on Income Tax Anti-avoidance Legislation was delivered to the States of Deliberation on 26 September 2013 by the Minister of the Treasury & Resources Department, Deputy Gavin St Pier.
My Department has been reviewing the anti-avoidance provisions within the Income Tax (Guernsey) Law, 1975, in particular anti-avoidance measures introduced to prevent Guernsey resident beneficial members "rolling up" profits in a company in order to take advantage of the tax cap. I would therefore like to take this opportunity to update States Members on the current position.
The tax cap currently applies to distributions from Guernsey companies, (and, historically, it applied to deemed distributions also) and it was recognised that Guernsey resident beneficial members may be incentivised not to make distributions from their companies but instead would "roll up" the profits with a view to taking a single distribution to take advantage of the tax cap. Anti-avoidance measures were introduced in 2009 to discourage this behaviour by charging the same amount of additional tax that would have been payable by the individual in the years of charge in which the relevant income arose or accrued to the company, from the carrying on of a business in Guernsey, had the income been distributed by the company in those years of charge.
Following the repeal of the deemed distribution provisions, a tax capped individual could now limit their liability by rolling-up the profits of an investment company, including property holding companies. This is because an investment company was previously subject to deemed distributions on all of its income and is not treated as carrying on a business, and so is not covered by the existing anti-avoidance provisions. My Department has therefore decided to bring proposals to extend the anti-avoidance provisions that prevent the "roll-up" of profits in a company in order to take advantage of the tax cap, to all classes/sources of income, not just business income, to the December States meeting with the intention that they will take effect from today. In other words, the legislation we will present, if approved by the Assembly in December, will have retrospective effect to any distributions made from today onwards.