Charles Parkinson, chartered accountant, lawyer and published author on international taxation, wrote an article claiming that the zero-10 regime was a failure.
He wants the island to abandon him and adopt a territorial tax system.
“Employment in Guernsey’s crucial financial sector in 2009, just after the introduction of zero-10, was 7,113,” said Deputy Parkinson, who also served as chairman of economic development.
“In 2021 it was 5,970. At the end of 2008 Guernsey had 48 registered banks. Today that number is 28.
“The zero-10 regime was promoted on the basis that it would encourage the growth of our financial sector – it failed.”
In a territorial system, companies pay taxes on their income only where they earn it.
Guernsey currently uses the worldwide income model for its corporate income taxation, this means companies pay tax where they reside on all income from anywhere in the world.
The zero-10 regime was established as part of the global income model, and this means that most companies locally pay 0% corporate tax on their profits and most financial institutions pay 10%.
The Organization for Economic Co-operation and Development already has tax reform on its way as it moves towards a global base corporate tax rate.
Deputy Parkinson thinks the zero-10 left ordinary islanders to foot the bill.
“Quite simply, the zero rate of income tax exempts the profits of most businesses operating in Guernsey’s domestic economy from tax,” he said.
“If the company is resident in Guernsey and its activities are not subject to one of the highest rates of tax, its profits will, in general, not be subject to tax until such profits are distributed to shareholders. individuals residing in Guernsey.
“If the shareholders are not resident in Guernsey, the profits will escape tax entirely, as there is no withholding tax on dividends paid to non-residents.”
Deputy Parkinson isn’t suggesting that a territorial tax system would solve the island’s tax problems, and at this point there are no hard numbers, but he thinks it would be a good place to start.
“Corporate tax reform is a necessary precondition for any other tax changes.
“The Guernsey public can rightfully demand that all players in Guernsey’s economy pay their fair share of our society’s costs, before the public is asked to pay more.”