Deloitte’s Head of Tax Policy Daniel Lyons was in the island recently as the firm hosted its annual international tax debate.
Alongside Daniel, speakers Jo Huxtable, Deloitte Guernsey’s tax partner, Deputy Lyndon Trott and Jo Reeve, States of Guernsey Director of International and Constitutional Affairs, tackled a number of topical issues. These included the ongoing evolution of international tax and transparency rules and how Guernsey is seeking to respond in a way which is both appropriate and allows business to flourish.
Jo Huxtable opened the event and noted that international relations and communication between governments have never been more important. She stated that Guernsey’s long-standing constitutional relationship with the UK is changing and that close collaboration with the EU has been essential in view of the work needed to address EU Code of Conduct Group’s requirements on economic substance. She also reminded the audience that the ongoing involvement of Guernsey in the OECD BEPS project has been essential to ensure Guernsey is in the room when it comes to discussions on evolving global tax policy.
Daniel Lyons described the dynamic changes in global tax policy over the past few years – driven to a large extent by the financial crisis and austerity, and questions being raised about large multinationals and high-net-worth individuals and whether they are paying their “fair share”. The economic impact of an ageing population and a smaller workforce was also raised.
Daniel stated that on one hand there has been a drive towards greater transparency with regimes such as the Common Reporting Standard and Country-by-Country Reporting. But on the other there has also been a focus on substance and taxing rights, largely in relation to digital business, to bring greater alignment between the market/consumers and the nexus of the business.
He talked about the respective roles of the OECD and EU in the context of tax policy, explaining that the OECD has taken the role of setting the direction for tax policy globally and the EU is typically devising its own special versions in the form of DAC6 (for mandatory disclosure), Anti-Tax Avoidance Directive (ATAD), Black Lists and convergence on tax. This convergence has been more visible in VAT although discussions on the Common Consolidated Corporate Tax Base (CCCTB) do continue – even if not supported by all EU member states.
It was also noted that proposals to introduce Qualified Majority Voting (instead of unanimity) in relation to tax, aimed to achieve a more efficient decision-making process, could see more power in the hands of the larger EU member states with the views of smaller states having less influence.
The OECD is overseeing the global project to harmonise tax rules across the world – described by Daniel as a two-phase process, BEPS being the first phase which has been about enlarging the tax base. The second phase, the Programme of Work on the Tax Challenges Arising from the Digitisation of the Economy, is about how tax should be distributed between governments depending on the activities of taxpayers, and includes proposals focused on countries which have a low effective rate of tax. The OECD’s latest proposals reference carve-outs which could be available to certain jurisdictions and industries and, according to Jo Reeve, are something that Guernsey’s government is aware of and will monitor.
Deputy Lyndon Trott provided an update on the status of Guernsey’s position on beneficial ownership, which has been in the news recently. The island’s commitment to increased transparency and accessibility of information whilst maintaining high standards of accurate and up-to-date verified information has been reconfirmed. Deputy Trott said that Guernsey would move to a public register of beneficial ownership at such time as that becomes an international norm. He announced that Guernsey is publishing a detailed action plan to demonstrate how the island will respond to global developments in regard to beneficial ownership over the next couple of years.
Discussions moved on to US tax reforms which include a cut in corporate tax from 35% to 21%, being part of a $1.5 trillion tax cut over 10 years, as well as anti-avoidance measures around earnings stripping (BEAT) and intangibles (GILTI). It was, however, noted that increased tariffs are also important – the average American may gain $795 per annum in tax cuts but tariffs will claw back £831 per annum.
Technically, Brexit was discussed in the context of how the UK would no longer have the benefit of EU directives relieving taxes on interest and royalties and dividends; however, the impact of changes to indirect tax, especially border administration, is often not understood and
the Single Market is often confused with the Customs Union. There will also be changes to VAT if the UK is no longer covered by the EU VAT Directives, for example, supplies of certain financial services would become exempt with credit in the same way as existing supplies to the US or the Channel Islands.
The possible tax outcomes of a Conservative versus Labour government were considered, comparing the prospect of corporation tax rates going down as low as 12.5% and increasing the higher rate band for income tax with some of the proposals mentioned in the Labour manifesto. These include increased tax rates, a “Mayfair Tax” on carried interest income, measures against low-tax countries, offshore property levy taxes etc.
The debate ended with a reflection on how the green agenda is becoming more important in raising tax revenues but ultimately in changing behaviours. Deputy Trott outlined the significance of the green agenda in Guernsey, which has driven the establishment of the Green Fund in 2018, the world’s first regulated green investment fund product, and the aspiration of the island to be at the forefront of the development of green and sustainable finance.