A modified corporate tax regime for Guernsey has been given the all-clear by an EU tax panel, after originally being deemed 'harmful'.

The EU Code of Conduct Group on Business Taxation concluded that the island's zero-10 regime was no longer considered to have the same 'harmful effects' as previously, following the removal of the deemed distribution provisions.

Concerns were raised by the EU tax group in April and, the Guernsey parliament, the States of Guernsey, in June, agreed to repeal the 'harmful' provisions from 1 January 2013.

The regime will be officially approved by the EU's Economic and Financial Affairs Council at the end of this year but Guernsey's chief minister, deputy Peter Harwood, said: 'Obviously this is subject to the standard ratification process but I am pleased that the EU Code Group confirmed that the repeal of our deemed distribution regime does indeed, as we expected, ensure our corporate tax regime conforms to the EU Code of Conduct.'

Under Guernsey's zero-10 regime, all companies are taxed at 0%, except for the profits of specified financial services businesses which are taxed at 10% (and local utilities at 20%). There is a specific tax exempt regime for collective investment schemes.

Fiona Le Poidevin, chief executive of Guernsey Finance, said: 'The deemed distribution provisions primarily affect locally resident shareholders and therefore it is very much a case of business as usual for the international client base of our finance industry.

'However, it is pleasing to hear that the Code Group has assessed our amended regime as Code Compliant. This shows Guernsey is a jurisdiction which is willing and able to move quickly to ensure it continues to meet international tax standards, while also retaining its position as an extremely competitive place to do business.'