Jersey's controversial business tax system is no longer harmful, a key group of European officials have concluded.
The news is likely to put to rest fears that Jersey could have to scrap the tax structure and have a massive new black hole.
Finance industry leaders said that the announcement was great news for Jersey and meant that island could "go back out with a strong message to win business around the world."
At a meeting in Brussels the EU code of conduct group on business tax approved the amendments to the controversial zero-ten business tax rules made by the island's parliament, the States, last year and effectively gave Jersey's tax system the all-clear. Their decision will have to be ratified at a meeting of European finance ministers in December, but ministers in Jersey have been celebrating the development.
During the past year, the UK Government has been critical of Jersey's corporate tax regime. No statement has yet been made about the ruling.
The EU told Jersey last year to change its zero-ten tax system, which charges businesses in the finance industry at ten per cent rate, while non-finance companies pay a zero business tax rate. The tax was deemed harmful by Europe as there was a clause – called deemed distribution - that required the shareholders of Jersey businesses who lived in Jersey to pay tax on company profits, whereas shareholders living outside the island paid nothing.
This was declared to be unfair, and Europe demanded action to make the system fair to both resident and non-resident shareholders. The States responded by changing the rules to remove deemed distribution.
This means that companies in Jersey, regardless of the residence of their shareholder will pay tax at either 0 per cent (in most cases), 10 per cent (in the case of financial services companies) or 20 per cent (in the case of utilities or property development income). Shareholders located in Jersey will be taxed if they receive any dividends from their company. If the shareholder is not resident in Jersey, that shareholder will be subject to tax under their domestic tax rules but would usually be subject to tax in that country on dividends received.
Geoff Cook, the chief executive of Jersey Finance, said that he was confident that both Ecofin – the group of European finance ministers – and the UK Government would back the code of conduct’s findings.
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