Monday 14 July 2014
The Treasury and Resources Department seeks the views of the public on its draft proposals for the introduction of document duty anti-avoidance provisions. The intention is that duty would be payable on the transfer of real property, not only where it is transferred by conveyance through the conveyancing court, when document duty is payable, but also when it is transferred by other means such as the transfer of an interest in a property-owning entity e.g. a company.
Document duty is presently payable upon the registration at the Greffe of a document which transfers an interest in real property (e.g. a conveyance) or imposes a charge on real property (such as a bond securing a loan).
For some time it has been recognised that the opportunity exists for the avoidance of document duty by the use of limited liability companies. If real property is owned by such a company, the transfer of that property can be achieved by the sale of the shares in the company to a new beneficial owner. No conveyance is necessary and therefore no document is registered at the Greffe and no document duty is payable. This was seen as inequitable and a Share Transfer Duty Working Group was established to look into the possibility of introducing a scheme which would prevent the avoidance of duty by the use of such methods.
The Budget Report of 2012 contained a proposition, which was approved by the States, approving the introduction of a scheme for the taxation of sales of interests in entities which own real property in Guernsey at the same rate as applied under document duty legislation. The proposals have now been finalised and can be summarised as follows.
As explained in the 2012 Budget Report, it was considered necessary to extend the scheme beyond imposing duty on the transfer of shares in property-owning companies. To limit the scheme to such transactions might encourage the creation of other schemes intended to facilitate the avoidance of document duty.
Duty would, subject to exemptions (see below), be payable on any transaction for value (other than one which attracts document duty) which has the effect of transferring an interest in Guernsey real property to any person. Examples of transactions which would potentially attract duty (in addition to the transfer of shares in a limited liability company) are transactions involving companies limited by guarantee, foundations, trusts and partnerships, in each case where the transfer of an interest in Guernsey real property is involved.
No duty will be payable where the transfer of an interest in property arises by inheritance or pursuant to a lease or for the sole purpose of securing a loan. A transfer of shares in a public company where the shares transferred represent less than 10% of the issued share capital will also not attract duty.
Exemptions from the requirement to pay duty would include the following -
- a "family transaction", such as a transfer between spouses, cohabitees or other members of the family;
- transfers to charitable organisations, the States of Guernsey, friendly societies and housing associations;
- transfers of property by a settlor into a trust or by a trustee to a beneficiary of the trust or to a new trustee;
- in relation to companies, transfers to a beneficial owner or between connected companies;
- transfers of property which result from court orders, such as orders for divorce or judicial separation, orders made in relation to inheritance etc.
Anti-avoidance provisions would apply to all exemptions.
Duty will be payable on the market value of the interest in the property transferred and at the same rate as document duty. The parties to a transaction will be jointly liable to submit a self-assessment, including any duty payable, to the Greffier within a certain period of the transaction taking place and failure to comply with the requirements will render the transaction invalid and may, in certain cases such as fraudulent evasion and making a false or misleading statement, involve the commission of a criminal offence.
In the event of any questions arising as to liability to duty, or the amount of duty payable, the matter will be passed to the Director of Income Tax for enforcement. Provision will also be made for penalties to be payable in the event of unpaid duty and for appeals against assessment.
Consultation responses should be received by Friday 15 August 2014 either in writing to The Minister, Treasury and Resources Department, Sir Charles Frossard House, La Charroterie, St Peter Port, Guernsey, GY1 1FH or to firstname.lastname@example.org