FT report backs Guernsey

Guernsey’s financial sector is holding strong against the economic meltdown, said the Financial Times in a special report.

Despite expectations to the contrary, the Channel island has exhibited an economic resilience. Its economy did contract by 2.6% in 2009, though held steady due to the contribution of the finance sector, which accounts for a little over 40% of the island’s output, according to the report.

The island also boasts virtually full employment, a low rate of inflation, no government borrowing, and large cash reserves. Lyndon Trott, Guernsey’s chief minister was quoted saying: “For me it’s difficult to be anything other than optimistic.”

Though offshore tax havens came in for heavy criticism at the beginning of the global crisis, many in the financial sector insist Guernsey’s activities were not caught in the storm.

Guernsey, alongside Jersey and the Isle of Man, which are not technically part of the UK, have become used to international criticism and scrutiny of their taxation and regulation over the past few years. However, due to the recent crisis, this scrutiny has got even more intense.

A forced change is being threatened to the island’s corporate tax structure, continued the FT special report. The “zero 10” structure, which equalise the corporate tax rate for almost all companies at 0%, while banks and others providing credit facilities are taxed at 10%, came into effect in 2008.

The islands were warned this autumn that the new regimes were considered to infringe the “spirit” of the EU code of conduct, and despite opposition from Jersey and the Isle of Man, Guernsey is taking a more conciliatory approach.

According to Mike Brown, chief executive of the States of Guernsey this scrutiny was always inevitable, though “because of the crisis, it has allowed a more rapid and more political approach” by the EU.

Trott does not believe that the island’s popularity for companies will be threatened by the attack on its tax regime or the international scrutiny.