- Guernsey will implement a 15% minimum corporate tax rate through an "Income Inclusion Rule" and a "Qualified Domestic Minimum Top-Up-Tax" from January 2025
- These rules apply to multinational groups with over €750 million in revenue, exempting certain entities like investment funds and real estate vehicles
- Larger companies should assess their inclusion under Pillar Two and understand the implications for their Guernsey operations
Guernsey and Jersey re-affirm commitment to OECD Pillar Two implementation
May 21, 2024
KEY TAKEAWAYS:
The Crown Dependencies have re-affirmed their commitment to international tax standards and the continued value of inter-island cooperation in areas of mutual interest in international tax policy.
Ministers from governments from Guernsey, Jersey and the Isle of Man met last week to discuss international tax matters and progress following the Crown Dependencies’ joint statement published in May 2023 on the Organisation for Economic Co-operation and Development’s Pillar Two framework.
Most recently, the respective Ministers discussed each Island's implementation plans for Pillar Two and noted they would shortly be commencing their respective legislative procedures to a common timeline with introduction for accounting periods commencing on or after 1 January 2025.
Pillar Two
The Pillar Two framework is a new set of international tax rules that seek to establish a global minimum corporate tax rate. Global anti-base erosion rules ("GloBE rules") will impose top-up taxes upon large in-scope multinational enterprises ("MNEs") where the effective rate of tax of a MNE in a jurisdiction is below the global minimum corporate tax rate of 15%.
This means that in-scope MNEs will be required to pay a 15% minimum effective rate of tax in every jurisdiction in which they operate. GloBE rules will apply to groups with more than €750 million global annual revenue, and there are exclusions for investment funds, real estate investment vehicles and certain holdings entities.
Essentially, once the GloBE rules are implemented, where a Guernsey or Jersey tax resident company that is part of an in-scope MNE has an effective tax rate in Guernsey or Jersey that is below the 15% minimum, it must pay a top-up tax to bring its effective tax rate up to 15%. This top-up tax is known as the "income inclusion rule".
Comments
These rules only apply to groups with more than €750 million global annual revenue, and there are various exemptions, including those for investment funds, real estate investment vehicles and certain holdings entities. Many companies will therefore fall outside the scope of the new GloBE rules with the Islands' current corporate income tax regimes continuing to apply. Larger structures should now, however, be analysing whether they are in scope and seeking to understand the impact for their respective operations.
We anticipate consultation on draft legislation to implement the adjustments to the tax regimes in each Island later this year.
About Walkers’ Channel Islands' Regulatory & Risk Advisory team
Walkers’ has a team of dedicated experts in Guernsey and Jersey spanning all areas of regulatory and tax compliance. We frequently advise on all aspects of Guernsey and Jersey regulation, including tax, economic substance, financial services, fintech, AML, sanctions, data protection, FATCA and the CRS.
Most recently, the respective Ministers discussed each Island's implementation plans for Pillar Two and noted they would shortly be commencing their respective legislative procedures to a common timeline with introduction for accounting periods commencing on or after 1 January 2025.
Pillar Two
The Pillar Two framework is a new set of international tax rules that seek to establish a global minimum corporate tax rate. Global anti-base erosion rules ("GloBE rules") will impose top-up taxes upon large in-scope multinational enterprises ("MNEs") where the effective rate of tax of a MNE in a jurisdiction is below the global minimum corporate tax rate of 15%.
This means that in-scope MNEs will be required to pay a 15% minimum effective rate of tax in every jurisdiction in which they operate. GloBE rules will apply to groups with more than €750 million global annual revenue, and there are exclusions for investment funds, real estate investment vehicles and certain holdings entities.
Essentially, once the GloBE rules are implemented, where a Guernsey or Jersey tax resident company that is part of an in-scope MNE has an effective tax rate in Guernsey or Jersey that is below the 15% minimum, it must pay a top-up tax to bring its effective tax rate up to 15%. This top-up tax is known as the "income inclusion rule".
Comments
These rules only apply to groups with more than €750 million global annual revenue, and there are various exemptions, including those for investment funds, real estate investment vehicles and certain holdings entities. Many companies will therefore fall outside the scope of the new GloBE rules with the Islands' current corporate income tax regimes continuing to apply. Larger structures should now, however, be analysing whether they are in scope and seeking to understand the impact for their respective operations.
We anticipate consultation on draft legislation to implement the adjustments to the tax regimes in each Island later this year.
About Walkers’ Channel Islands' Regulatory & Risk Advisory team
Walkers’ has a team of dedicated experts in Guernsey and Jersey spanning all areas of regulatory and tax compliance. We frequently advise on all aspects of Guernsey and Jersey regulation, including tax, economic substance, financial services, fintech, AML, sanctions, data protection, FATCA and the CRS.
