The Crown Dependencies are taking the next steps in their plans to implement the OECD’s Pillar Two framework.
Pillar 2 establishes the framework for a global 15% minimum effective tax rate for large multinational groups, calculated at a jurisdictional level, with a top-up charge imposed on any low-taxed profits.
Guernsey
The Policy & Resources Committee will shortly be lodging a policy letter proposing the introduction of an ‘Income Inclusion Rule’ and a ‘Qualified Domestic Minimum Top-Up-Tax’ to provide for a 15% effective tax rate for large in-scope multinational enterprises, from 2025. This is in line with the intended approach set out in the 19 May 2023 Crown Dependencies’ joint statement.
The Income Inclusion Rule imposes a top-up tax on a parent entity in respect of the low taxed income of a foreign subsidiary. The Qualified Domestic Minimum Top-Up-Tax will bring the effective tax rate to 15% for in-scope entities in Guernsey that are not already charged an effective tax rate of 15% or more.
The States has worked with industry to inform implementation plans and will shortly be engaging with the business community on some specific design elements as part of the legislative drafting process.
The States will continue to monitor implementation internationally, as Guernsey remains committed to continuing to offer an attractive and globally competitive investment environment.
Deputy Lyndon Trott (pictured), President of the Policy & Resources Committee, said: “Guernsey has a well-established and stable corporate income tax system, and longstanding and independently assessed track record of meeting international standards. We are proud of our global leadership in tax cooperation, combatting money laundering and countering the financing of terrorism and proliferation financing, and in providing appropriate and effective transparency.
“Guernsey has consistently championed the need for a level playing field in tax cooperation and we have a long track record of maintaining the highest standards in tax transparency and fairness. In its implementation of the OECD Pillar Two initiative, Guernsey wants to provide certainty and stability for businesses in the island, ensuring Guernsey remains competitive while staying at the forefront of emerging global norms in tax matters.”
Jersey
In May 2023, the Government of Jersey announced its intention to implement a Pillar 2 Income Inclusion Rule and a Domestic Minimum Tax from 2025. Since then, it has been monitoring international developments and engaging closely with affected stakeholders in Jersey and overseas on the detailed design and implementation of Pillar 2.
Jersey is keeping its 2023 commitment. It intends to achieve this by introducing the following legislation for groups in-scope of Pillar 2 (i.e. multinational groups of companies with global annual turnover of more than 750 million Euros), with accounting periods beginning on or after 1 January 2025:
- An Income Inclusion Rule (IIR); and
- A new standalone multinational corporate income tax (MCIT) to sit alongside Jersey’s existing corporate income tax regime.
The MCIT will align with the OECD GloBE Model Rules so that Jersey companies and Jersey branches of in-scope multinational groups pay an effective rate of 15% on their profits.
The Government of Jersey is clear that this new multinational corporate income tax is the right approach to Pillar 2 implementation for Jersey. It will support its diverse geographical investment base and, where relevant, will address certain unintended double taxation challenges that Pillar 2 implementation creates for some taxpayers. It will also operate independently of the existing tax regime, thereby reducing the need for top-up calculations and maintaining administrative simplicity to the greatest extent possible.
The Government of Jersey will also be proposing a competitive Pillar 2 compliant package of support that boosts the productivity, digital capacity and skills of the wider economy while seeking to reduce operating costs and which harnesses Jersey’s continued growth as an International Finance Centre.
Jersey will not be enacting an Undertaxed Profits Rule at this time.
The Government of Jersey has given very careful consideration to its Pillar 2 approach and has consulted with a wide range of stakeholders.
The Minister for Treasury & Resources, Deputy Elaine Millar said: “As we finalise the detail of our Pillar 2 policy development work, I am confident that the legislation we lodge in the summer will align with evolving international tax standards. I would encourage any multinational groups that have not yet spoken to Jersey’s tax policy team, and would like to do so, to contact the team by emailing [email protected].”
The Minister for External Relations, Deputy Ian Gorst said: “We are focused on maintaining a globally competitive business environment and providing our taxpayer customers worldwide with administrative simplicity, certainty of outcome, and adherence to international standards.”
The Isle of Man
The Isle of Man Government intends to introduce a Qualified Domestic Minimum Top-Up Tax with effect from 1 January 2025.
This measure is in response to the Organisation for Economic Co-operation and Development’s Pillar Two initiative, which aims to ensure that multinational enterprises (MNEs) pay a fair share of tax wherever they operate and generate profits.
The Qualified Domestic Minimum Top-Up Tax (QDMTT) will mean that MNEs with an annual turnover exceeding 750 million Euros operating within the Isle of Man will pay a minimum of 15% tax on the profits they generate on the Island.
Treasury Minister Dr Alex Allinson MHK said: “Alongside Jersey and Guernsey, the Isle of Man announced last year that it intended to implement a domestic minimum tax to provide for a 15% effective tax rate for large in-scope multinational enterprises, from 2025. Today I am confirming how the Isle of Man intends to achieve this.
“The QDMTT approach is provided for in rules published by the OECD and ensures that the Island remains aligned with its international obligations and commitments as a reputable financial centre. It also means that the MNEs operating in the Isle of Man will retain confidence in our system and how it will interact with the tax systems in the other jurisdictions in which they operate.”
Dr Allinson added: “While the Isle of Man has relatively few multinational firms of the scale affected by the change, it is vital that we adhere to international standards and continue to play our part in global efforts to combat base erosion and profit shifting.
“The Isle of Man has a much smaller number of MNEs that have their ultimate parent entity located in the Island. We are therefore looking at whether implementing an Income Inclusion Rule would be of relevance, and a final decision will be taken later in the year. We will also continue to monitor implementation internationally, as the Isle of Man remains committed to offering an attractive and globally-competitive investment environment.’
Dr Allinson concluded: “The Assessor and her team will continue to engage affected businesses while preparing the necessary legislation, which I envisage bringing to Tynwald in the autumn.”
