A study conducted by financial expert Michael Foot is recommending that British Overseass Territories such as the Turks and Caicos Islands pay more taxes.

The study noted that the tax regimes in most of the Overseas Territories have not evolved beyond the imposition of specific transaction and consumption taxes: they operate a range of customs duties on imports, on which they are heavily reliant for revenue. 

It was noted that with the exception of Gibraltar, the Overseas Territories have not introduced income taxes, corporation taxes, or value added tax (VAT) or goods and services tax (GST), adding that the tax regimes in the Crown Dependencies and Gibraltar have developed to include income and corporation taxes, with the latter consistently levied at a lower rate than the main rate in the UK.

The Review was keen to understand the impact on the competitive position of the nine jurisdictions should local governments wish to move closer to developing international tax norms.

The study noted that  the firm Deloitte considered the scope for the jurisdictions moving towards consensus models in the areas of VAT and corporation tax (CT).

“Deloitte concluded that there was a compelling case for those of the nine jurisdictions which do not already operate VAT or GST to consider introducing such a system to increase the sustainability of their business models by broadening their revenue bases. Deloitte noted that this would be of particular importance for the Overseas Territories should the global trend for reducing reliance on customs duties continue,” the report said.

“Deloitte also concluded that the Crown Dependencies’ industry bases were sufficiently diverse that they had the potential to raise worthwhile levels of revenue from a CT system more aligned with international ’best practice’ than the regimes currently in place. By contrast, some of the Overseas Territories’ focus on a narrower financial sector niche suggested that the introduction of a broad-based CT would offer less scope for a significant tax take.  Deloitte concluded that, in any event, the downside of a properly constructed ‘best practice’ CT system would appear to be relatively limited and would bring the jurisdictions more into the mainstream of the international community. It might also curtail some scope for tax avoidance.

The report said Deloitte recognised that given the diverse tax regimes and industry bases of the Crown Dependencies and Overseas Territories, a single template for all the jurisdictions might not be appropriate. A detailed impact assessment of the effect of introducing tax changes in individual jurisdictions would also need to be undertaken.