Harmful Tax Practices – 2017 Peer Review Reports on the Exchange of Information on Tax Rulings

Guernsey

Guernsey has met all aspects of the terms of reference (ToR) for the calendar year 2017 (year in review) and no recommendations are made.

Guernsey can legally issue five types of rulings within the scope of the transparency framework.

In practice, Guernsey issued five past rulings; and for the year in review, Guernsey issued three future rulings within the scope of the transparency framework.

No peer input was received in respect of the exchanges of information on rulings received from Guernsey.

Introduction

468.  This peer review covers Guernsey’s implementation of the BEPS Action 5 transparency framework for the year 2017. The report has four parts, each relating to a key part of the ToR. Each part is discussed in turn. A summary of recommendations is included at the end of this report.

A. The information gathering process

469.  Guernsey can legally issue the following five types of rulings within the scope of the transparency framework: (i) rulings related to preferential regimes; (ii) cross-border unilateral advance pricing agreements (APAs) and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles; (iii) cross-border rulings giving a unilateral downward adjustment to the taxpayer’s taxable profits in the country giving the ruling; (iv) permanent establishment rulings; and (v) related party conduit rulings. In Guernsey, the Director of Income Tax, Deputy Director, Assistant Deputy Director and Senior Technical Inspector at the Guernsey Income Tax Office (“ITO”), which is a centralised office, are authorised to issue rulings.

Past rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1, I.4.2.2)

470.  For Guernsey, past rulings are any tax rulings within scope that are issued either: (i) on or after 1 January 2015 but before 1 April 2017; or (ii) on or after 1 January 2012 but before 1 January 2015, provided they were still in effect as at 1 January 2015.

471.  The process for identifying past rulings was conducted as follows: All records of past rulings are kept in one centralised office in the ITO since Guernsey has no separate field offices. All tax rulings are maintained in physical files (management control file and taxpayer’s physical file) as well as in electronic form (document management system).

472.  In order to identify all past rulings in scope issued by the Director of Income Tax, a Deputy Director, the Assistant Deputy Director or the Senior Technical Inspector, a three-tier review process was developed. For stage one, senior officers in the Exchange of Information (EOI) team, known as the International Co-operation Unit, would manually review the management control files to verify the dates and whether the rulings are within scope of Action 5 by reading each of the issued rulings. In stage two, the Compliance and Investigation Manager would then further review the analysis conducted in stage one to ensure that the rulings identified were in fact a ruling within the scope of the transparency framework. The third and final review was jointly conducted by the Deputy Director (Compliance and International) and the Assistant Deputy Director to ensure accuracy.

473.  For rulings pertaining to companies carrying on a banking business, rulings are stored in separate banking control files, and these rulings are issued by the Senior Technical Inspector (unlike other types of activity which are issued by the Senior Management Team). The Senior Technical Inspector responsible for issuing such rulings conducted a manual search of all of the files for taxpayers carrying out a banking business in order to identify any potential past rulings in the scope of Action 5 for stage one of the review process. Stages two and three of the review process were then conducted as detailed in paragraph 8.

474.  In order to identify all potential exchange jurisdictions, the rulings themselves were reviewed firstly. In certain cases, Guernsey adopted the “best efforts approach” by reviewing the documents and correspondence of the relevant tax ruling. The relevant taxpayer’s file (both electronic and physical) would be subject to further review in order to determine all potential exchange jurisdictions. The information was verified in the three-tier checking process at increasing levels of seniority. Guernsey was able to identify the potential exchange jurisdictions in all cases.

Future rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1)

475.  For Guernsey, future rulings are any tax rulings within scope that are issued on or after 1 April 2017.

476.  In 2017, Guernsey introduced a tax ruling template to be used by taxpayers for all future tax rulings applications. The template is available in electronic form on the ITO’s website.

477.  Guernsey indicates that the completion of the template is mandatory for all ruling applications. The template requires the taxpayer to provide their identification details (name, tax reference number and address), accounting period, category of ruling, summary of issues, details of jurisdictions of residence of related parties and details of jurisdictions of residence of both the immediate parent and ultimate parent of the taxpayer. The applicant also has the option to provide details of the taxpayer’s main business activities and include group structure diagrams or any other documentation in support of their application. New applications for a tax ruling will not be considered unless information concerning potential exchange jurisdictions is included by the taxpayer.

478.  As part of the rulings process in place, all tax ruling applications are subject to a two-tier review process. A senior tax officer/inspector will review the template submitted by the taxpayer to determine if it is complete. If any information is lacking, the taxpayer is requested to provide the additional information. A second reviewer (Director, a Deputy Director or Assistant Deputy Director) will review the analysis and decision conducted by the first reviewer. At this stage, the potential exchange jurisdictions in the future rulings issued and ruling category are identified.

Review and supervision mechanism (ToR I.4.3)

479.  Guernsey notes that training on the transparency framework was provided to all Senior Assessor and Tax Inspectors taking part in the process of identifying the relevant rulings. An internal procedure with regards to the application process for future tax rulings was introduced to ensure all rulings are identified and all necessary information is obtained.

480.  Guernsey developed a three-tier review process at increasing levels of seniority. The final-tier review under the information-gathering process to identify potential past ruling and categories of tax rulings is carried out by the Deputy Director (Compliance and International) and the Assistant Deputy Director.

Conclusion on section A

481.  Guernsey has met all of the ToR for the information gathering process and no recommendations are made.

B. The exchange of information

Legal basis for spontaneous exchange of information (ToR II.5.1, II.5.2)

482.  Guernsey has the necessary domestic legal basis to exchange information spontaneously. Guernsey notes that there are no legal or practical impediments that prevent the spontaneous exchange of information on rulings as contemplated in the Action 5 minimum standard.

483.  Guernsey is a party to international agreements permitting spontaneous exchange of information, including (i) the Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol (OECD/Council of Europe, 2011) (“the Convention”), (ii) double tax agreements and (iii) tax information exchange agreements. In total, this network covers 120 jurisdictions1 (although for some jurisdictions the Convention has not yet entered into force).

Completion and exchange of templates (ToR II.5.3, II.5.4, II.5.5, II.5.6, II.5.7)

484.  Guernsey notes that the team responsible for issuing tax rulings (both past and future rulings) is also responsible for identifying those rulings which are to be exchanged under Action 5. With respect to past rulings, the team fills in the template in PDF format as contained in Annex C of the Action 5 report (OECD, 2015).

485.  With respect to future rulings, Guernsey made it mandatory for taxpayers seeking a ruling to complete a template setting out all of the required information, which is subject to review by the relevant officer dealing with the case, followed by authorisation by either the Director, Deputy Director or Assistant Deputy Director. Once a ruling has been authorised, the case is sent to the International Compliance Unit where one of the officers will complete the Annex C template. The file will be re-submitted to the Director, Deputy Director or Assistant Deputy Director for the review of the accuracy of the documents before sending. For past and future rulings, Guernsey confirms that it uses the internal FHTP suggested guidance to complete the summary section of the template under Annex C.

486.  Guernsey indicates that the process for making the information available to the Competent Authority is immediate, as the same office that issues rulings is also responsible for exchanging the rulings. The past rulings that were within scope were all exchanged before the deadline of 31 December 2017. Information on future rulings is generally exchanged within three months after a particular ruling is issued.

487.  The timeliness of exchanges is as follows:

 

Past rulings in the scope of the transparency framework	Number of exchanges transmitted by 31 December 2017	Delayed exchanges
		Number of exchanges not transmitted by 31 December 2017	Reasons for the delays	Any other comments
	6	0	N/A	N/A
Future rulings in the scope of the transparency framework	Number of exchanges transmitted within three months of the information becoming available to the competent authority or immediately after legal impediments have been lifted	Delayed exchanges
		Number of exchanges transmitted later than three months of the information on rulings becoming available to the competent authority	Reasons for the delays	Any other comments
	3	2	See below	See below
Total	9	2

 

Follow up requests received for exchange of the ruling	Number	Average time to provide response	Number of requests not answered
	0	N/A	N/A

488.  Guernsey explained that the transmission delay regarding future rulings during 2017 occurred due to an internal incorrect classification as past rulings, so they inadvertently were subjected to the internal review and exchange timetable put in place for past rulings. The affected future rulings were in any case completed during the year in review.

489.  Guernsey has explained that procedures are now in place where officers in the International Co-operation Unit maintain a spreadsheet that contains a list of all tax ruling applications, which are monitored regularly. The Line Manager of International Co-operation Unit requires weekly updates of all exchange of information statistics including rulings in order to ensure close monitoring to enable the Line Manager to deploy adequate resources accordingly. The introduction of these procedures ensures that information on tax rulings are exchanged in a timely manner.

Conclusion on section B

490.  Guernsey has the necessary legal basis for spontaneous exchange of information and completing the templates for exchange. There were some delays for exchanging information on future rulings, however the explanation given by Guernsey indicates that this was due to a one-off classification error. Monitoring mechanisms are now place ensuring the timely exchange of all future rulings. Guernsey has met all of the ToR for the exchange of information process and no recommendations are made.

C. Statistics (ToR IV)

491.  The statistics for the year in review are as follows:

 

Category of ruling	Number of exchanges	Jurisdictions exchanged with
Rulings related to preferential regimes	0	N/A
Cross-border unilateral advance pricing agreements (APAs) and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles	Included in de minimis	N/A
Cross-border rulings providing for a unilateral downward adjustment to the taxpayer’s taxable profits that is not directly reflected in the taxpayer’s financial / commercial accounts	Included in de minimis	N/A
Permanent establishment rulings	6	Cyprus, Jersey, United Kingdom, United States
Related party conduit rulings	0	N/A
De minimis rule	5	N/A
IP regimes: total exchanges on taxpayers benefitting from the third category of IP assets, new entrants benefitting from grandfathered IP regimes; and taxpayers making use of the option to treat the nexus ratio as a rebuttable presumption	N/A	N/A
Total	11

D. Matters related to intellectual property regimes (ToR I.4.1.3)

492.  Guernsey does not offer an intellectual property regime for which transparency requirements under the Action 5 Report (OECD, 2015) were imposed.

Summary of recommendations on implementation of the transparency framework

 

Aspect of implementation of the transparency framework that should be improved	Recommendation for improvement
	No recommendations are made.

References

OECD (2017), BEPS Action 5 on Harmful Tax Practices – Terms of Reference and Methodology for the Conduct of the Peer Reviews of the Action 5 Transparency Framework, OECD/G20 Base Erosion and Profit Shifting Project, OECD, Paris. www.oecd.org/tax/beps/beps-action-5-harmful-tax-practices-peer-review-transparencyframework.pdf.

OECD (2015), Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris. https://doi.org/10.1787/9789264241190-en.

OECD/Council of Europe (2011), The Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264115606-en.

Note

← 1.  Parties to the Convention are available here: www.oecd.org/tax/exchange-of-tax-information/convention-on-mutual-administrative-assistance-in-tax-matters.htm. Guernsey also has bilateral agreements in force with Bahamas, British Virgin Islands, Cayman Islands, Cyprus, Gibraltar, Hong Kong, Isle of Man, Jersey, Liechtenstein, Luxembourg, Malta, Mauritius, Monaco, Qatar, Seychelles, Singapore, Turks and Caicos Islands, United Kingdom and United States permitting spontaneous exchange of information.

Note by Turkey: The information in this document with reference to “Cyprus” relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Turkey recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Turkey shall preserve its position concerning the “Cyprus issue”.

Note by all the European Union Member States of the OECD and the European Union. The Republic of Cyprus is recognised by all members of the United Nations with the exception of Turkey. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus.