Jersey has confirmed that it is working with Guernsey and the Isle of Man towards compliance with OECD global tax reform.
Jersey’s Minister for External Relations and Financial Services, Senator Ian Gorst, has welcomed the publication of a Statement by the OECD Inclusive Framework on the building blocks for a new global tax framework. 130 out of 139 member jurisdictions of the Inclusive Framework, including Jersey, have agreed the Statement as of 1 July 2021.
This announcement is an important stepping-stone in the OECD process to agree new rules for the taxation of the world’s largest multi-national companies. It has taken two years of detailed discussions and negotiations to arrive at this point and further work is required before a final agreement is reached.
The OECD has been working to establish a global solution to reform the international corporate tax framework, impacting how large multi-national enterprises are taxed around the world.
The recent announcement by the G7 Finance Ministers supported the OECD initiative, with an agreed set of taxation rules on Pillar 1 and a minimum effective rate of at least 15% in respect of Pillar 2. At the recent Inclusive Framework meeting, an overwhelming majority of jurisdictions reached agreement on the proposals. Technical discussions will now continue, developing a detailed implementation plan by October.
The OECD proposals are targeted and limited in scope, focussing on the world’s largest companies:
- Pillar One of the package would create new profit allocation rules for the world’s largest 100 global multi-national companies, excluding regulated financial services. For that small targeted group, certain of their profits would be re-allocated to the jurisdictions of their markets and customers
- Pillar Two would introduce a new framework of taxation where companies falling within the scope of the Pillar Two tax would pay a Minimum Effective Rate of taxation (MER) on their global profits, calculated on a country-by country basis. The level of the Minimum Effective Rate contained in the OECD statement is “at least 15%”. However, it will likely be many more months of negotiation and discussion before the final rate is agreed.
The proposals also recognise that funds should not be in scope of Pillar 2 and there is an exclusion for regulated financial services from Pillar 1. Investment funds that are ultimate parent entities of a Multi-National Company Group or any holding vehicles used by such entities, organisations or funds will not be subject to the Pillar Two rules.
The agreement from this OECD Inclusive Framework meeting will be sent for political endorsement to the G20 meeting of Finance Ministers in Venice on 9th – 10th July 2021.
Senator Gorst said: “The Government of Jersey has participated fully at every stage of these discussions, to represent the interests of the Island, our economy and our international finance centre. Officials from across Government departments will continue to prioritise this work in the important months that lie ahead, and continue to coordinate with Guernsey and the Isle of Man. As a member of the Inclusive Framework on Base Erosion and Profit Shifting (BEPS), Jersey continues to play a full and active role in the OECD discussions on develop proposals for international tax reform.
“The Government of Jersey has always maintained that international tax standards should be developed on a global basis by organisations such as the OECD, rather than on a regional basis, as this helps protect the principle of maintaining a level playing field among tax jurisdictions globally. This is critical to ensuring that the interests of small countries are balanced with those of larger countries.
“Jersey’s corporate tax system has been carefully designed to meet the Island’s ongoing fiscal needs and to align with international standards. This means that Jersey’s corporate tax system is designed to support the requirements of a geographically small economy that is open and attractive to global investment.
“Jersey is well placed to continue to adapt to international tax standards, and we will continue to engage in a proactive way with the OECD, EU and global bodies to combat aggressive tax avoidance and profit shifting. Our focus continues to be on adding value to the global economy by offering a stable, certain and attractive environment for supporting the growth of cross-border investment in a well-regulated and transparent manner.”
Joe Moynihan, chief executive officer, Jersey Finance, commented: “We note and welcome the fact that Jersey is one of the 130 OECD members to have agreed to the OECD statement announced last week, which is a further positive step in finding a consensus that would lead to international tax reform on a global basis.
“It is encouraging that Jersey’s government has been able to participate fully in discussions about the future of global taxation through its membership of the Inclusive Framework on Base Erosion and Profit Shifting (BEPS) and helpful that it continues to have a seat at the table and play an active part as negotiations continue.
“The proposals recognize that funds should not be in scope of the new framework and there is also an exclusion for regulated financial services. Investment funds that are ultimate parent entities of an MNC (Multi-National Company) Group or any holding vehicles used by such entities, organisations or funds are not subject to the framework as laid out either.
“These proposals are limited in scope and are part of the OECD process to agree new rules for the taxation of the world’s largest multi-national companies including the tech giants, which is not a significant feature of Jersey’s business model, where the Industry focus has been consistently on providing banking, funds and private wealth services.
“We will continue to engage with government and the key global organisations as these proposals progress and we will be stressing that our prime concern remains that any reforms are applicable to everyone, balancing the interests of smaller jurisdictions such as Jersey as well as larger ones.
“Jersey’s finance industry has always been ready to evolve to meet new international norms and changing regulatory standards and it has done so effectively in the past. If agreement is reached on a new global tax framework, we are well placed to adapt again, enabling us to continue to offer the stable, well-regulated and innovative commercial environment that attracts both cross border investment and international investors, the driver of our Industry’s success for decades.”
Jersey’s tax policy
- the Government of Jersey has always been clear that Jersey is no different from any other jurisdiction in seeking to design its tax system to suit its needs and to provide maximum opportunity to support jobs and growth.
- for smaller jurisdictions, like Jersey, this can mean the use of a competitive tax policy as a legitimate lever to compensate for the advantages enjoyed by larger jurisdictions in terms of scale, location, and resources.
- Jersey’s tax policy is based on the principle of tax neutrality combined with the application of strong rules on economic substance and transparency, which have been approved by the OECD and the EU.
- Jersey’s tax regime has been subject to recent external and independent assessments, and these have shown that we meet all the requirements of international policymakers on the implementation of global tax standards.
Guernsey has also confirmed that they are working towards complying with OECD global tax reform.
Guernsey’s Deputy Mark Helyar, Treasury lead for the Policy and Resources Committee said: “Guernsey works closely with the OECD on these international tax matters, including the original Base Erosion and Profit Shifting (BEPS) initiative, the Forum on Harmful Tax Practices as well as the more recent OECD commitment to address the challenges from digitalisation of the economy, which includes a proposal that large multinational enterprises should pay a minimum effective rate of tax on its profits.
“Guernsey supports the objective of reaching agreement on a worldwide approach, and a level playing field, which will help avoid the complexities of unilateral action by countries. The OECD have now reached agreement, following years of negotiations, in which Guernsey has taken part. Guernsey welcomes this further milestone and will continue to participate actively in the ongoing technical discussions, coordinating with Jersey and the Isle of Man, as a detailed implementation plan is developed.
“The recent European Commission communication entitled the ‘Communication on business taxation for the 21st century’ highlights the importance of reaching an agreement in the OECD and in the G20. Guernsey also works closely with the EU Commission and the EU Code of Conduct Group on Business Taxation reflected in the commitments it has made to EU tax standards. It has a long track record of adapting to meet new international tax standards.
“Guernsey’s tax regime was assessed as being non-harmful against the criteria of the Code of Conduct in 2013. In 2019 the EU reaffirmed its previous assessment that Guernsey is a cooperative jurisdiction with respect to tax good governance following the implementation of new substance requirements. Guernsey continues to engage with the OECD and EU on international tax matters.”
