Wednesday 14 December 2016
I would like to take this opportunity to provide an update to the Assembly, on the requirement for local banks to report to the income tax office, details of bank interest received by Guernsey residents.
The original proposals were resolved by the States on 11th December 2013 (Billet d'état XXIV of 2013). At that time, the key driver for these proposals was to reduce the burden on taxpayers, by enhancing the information the income tax office receives from third parties.
However, since that debate, there have been a number of international tax developments, which have led to greater automatic exchange of information for tax purposes, through the implementation of FATCA - first with the US and then with the UK - and then the Common Reporting Standard.
These international developments mean that, counter-intuitively, Guernsey will in fact shortly be receiving more information from foreign tax authorities about taxpayers' overseas interests, than we do from local financial institutions about taxpayers' domestic income.
A bank interest exemption of £50 was also introduced in 2015, aimed at encouraging and rewarding savings. This step also alleviated the reporting burden for taxpayers, particularly with current low interest rates.
Jersey recently announced proposals in their 2017 Budget - debated there this week - introducing domestic reporting of interest aligned to the reporting requirements of the Common Reporting Standard. Regulations will be developed in partnership with banks to be brought forward early in 2017. Jersey recognised that undeclared bank interest was the most common error identified during their last disclosure opportunity (or tax amnesty) offered in 1998.
Therefore, in order to minimise compliance costs for financial services businesses and recognising that many banks operate across both islands, the Policy & Resources Committee plans to bring forward proposals to amend the 2013 resolutions and subsequent legislation, in order to align the domestic reporting of interest with that under the Common Reporting Standard. In order to ease implementation for local banks, the timing of this will be aligned with Jersey (so far as possible, given our different administration processes.) This will be achieved through joint engagement from the tax offices in both islands with industry, continuing our commitment to "Work Better Together".
In order to provide clarity to the banks and to enable them to prioritise their resources appropriately, I would like to confirm that the Director of Income Tax will not require reporting of any interest paid or credited by banks to an individual resident in Guernsey for any calendar year preceding2017. For the avoidance of doubt, individuals of course remain responsible for reporting any such interest received on their personal tax returns, subject to the £50 exemption I referred to earlier.
Also, for clarity, the Director will not seek to impose penalties in the event that a 'Tax Identification Number' - which is a term used in the Common Reporting Standard - has not been obtained for accounts established by individuals' tax resident in Guernsey prior to 31 December 2016. For Guernsey residents, the Tax Identification Number (TIN) is actually their social security number, because this is unique to each individual.
For completeness, I should mention that the original proposals also envisaged domestic reporting of interest paid by Guernsey residents to financial institutions. Following the resolution - as part of the Personal Tax, Pensions and Benefits Review debate in April 2015 (Billet d'état IV of 2015) - to phase out mortgage interest tax relief by 2025 and recognising the cost implications for financial institutions to change their systems to report all mortgage accounts for such a short period, the Director of Income Tax will - as set out in the 2016 Budget (Billet d'état XIX of 2015) - only request that information from a financial institution in respect of those individuals where further clarification is required. It is not proposed that this arrangement would change.
I would like to take this opportunity to thank the Committee forEconomic Development - particularly Deputies Ferbrache and Dudley-Owen - for their recent assistance and input in reviewing this matter with the Association of Guernsey Banks. The decisions have also been taken having regard to the objective contained in Future Guernsey, the recently approved Phase 1 of the Policy & Resources Plan, of "keeping regulation appropriate and proportionate."
In summary, officers from the income tax office will now work with their counterparts in Jersey and through engagement with industry, to finalise proposals that will introduce domestic reporting of interest, aligned with the reporting requirements of the Common Reporting Standard. My committee will report back on progress later in 2017.
