Following our recent Article entitled “2017:  A look ahead from an Individual’s Perspective”, we at Ferbrache & Farrell are pleased to provide you with an update concerning the payment of Document Duty on the acquisition of the share capital of property holding companies. 

As readers may recall, the particular fiscal problem is the tax treatment of transactions which do not involve a conveyance, but which have an effect equivalent to the transfer of ownership in real property.   Historically, such transactions were exempt from Document Duty and thus were a missed opportunity to raise revenue.   

This problem had been identified on various occasions by Deputies in the States of Deliberation.  It then lead to the Policy & Resources Committee producing a 2016 paper entitled “Document Duty and Anti-Avoidance Duty” to be tabled before the States of Deliberation.  That Policy Letter was clear in its objectives and an Explanatory Memorandum sets out how such a loophole could be closed legislatively.  The ensuing Projet De Loi (draft law) is entitled “The Document Duty (Anti-Avoidance) (Guernsey) Law 2017”.

If approved, one of the effects of that Projet will be to repeal a Document Duty law of 1973, together with an Ordinance covering equivalent subject matter of 2003, and thereby introducing a regime that remedies the fiscal mischief.

On 17 May 2017, the States of Deliberation formally considered that earlier Policy Letter together with the Projet and resolved to approve the new anti-avoidance regimen.  As part of a number of resolutions made on 17 May, the Bailiff was also authorised to present a petition to Her Majesty seeking Royal sanction to the Projet.

In terms of next steps, the Bailiff (through the Law Officers) will then send the Anti-Avoidance Projet De Loi to the Privy Council Committee for the Affairs of Jersey and Guernsey (in London).  The officers of that Committee will in turn seek representations. 

Working on the basis that there are no adverse representations, the Projet De Loi will then be recommended for approval by the Queen (in this context Her Most Excellent Majesty in Council) at the next meeting of the Privy Council.  If the Projet is approved, it will then become an Ordre en Conseil (Order in Council) and will be returned to Guernsey for registering by the Royal Court.

At that stage, the Ordre en Conseil will then need a Commencement Ordinance from the States of Deliberation to bring The Document Duty (Anti-Avoidance) (Guernsey) Law 2017 into effect. 

Historically, there have been instances of Ordres not being formally implemented for some time (examples being the 2005 Planning Law (commenced 2009) and the 2000 Human Rights Law (commenced 2006)).  However, it is relatively safe to assume that due to the nature of the subject matter this particular piece of legislation is unlikely to be preserved in legislative aspic.

Interestingly, as share acquisitions in property holding companies do not need to be registered at the Greffe, the numbers of such transactions (and the price paid for properties) is not widely known.  The extent of the new tax take will remain to be seen. 

In future, buyers of shares in property holding companies will also need to balance the attractiveness of ownership by conveyance or ownership of shares with the corporate administrative obligations required.

We at Ferbrache & Farrell are watching developments with interest and will be pleased to update you.

Author Alastair Hargreaves Advocate & Managing Partner