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Update on international corporate tax framework development

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Tuesday 12 April 2022

The OECD has been working on a global solution to reform the international corporate tax framework, which will affect how large multinational enterprises are taxed around the world.

That framework is based on two broad work streams: Pillar 1 is essentially a proposal for partial re-allocation of taxing rights and Pillar 2 proposes that large multinational enterprises will pay a minimum effective rate of tax of 15% on their profits. These proposals seek to address issues linked to the increasing globalisation and digitalisation of the economy.

An overwhelming majority of jurisdictions (including Guernsey, Jersey and the Isle of Man) reached agreement on the proposals and the detailed implementation plan that was announced by the OECD in October 2021. Since then, technical discussions have continued to develop model rules, commentary and the multilateral instruments/conventions that will be needed to implement them. This work is still ongoing, with the proposals continuing to develop.

It is expected that Guernsey will implement the Minimum Standards that are contained within the proposals - the Pillar 1 Minimum Standard and the Pillar 2 Subject to Tax Rule, which applies to double tax treaties.

The other element of Pillar 2 (GloBE) has been designed so that jurisdictions are not obliged to adopt the GloBE rules, but must accept the application of them by other jurisdictions. Government continues to engage with stakeholders on the most appropriate implementation option for Guernsey and for the multinational groups that operate here.

Deputy Peter Ferbrache, President of the Policy & Resources Committee said:

"Guernsey is supportive of reaching a worldwide approach and a level playing field.  We have worked closely with the OECD in these discussions, and we've coordinated our approach with the Isle of Man and Jersey so that the interests of the Islands are well represented.

The timing of these talks is clearly relevant to our ongoing Tax Review as we look to safeguard essential services for future generations, in the face of an expected £85m annual shortfall as a result of big changes to the make-up of our population. 

The development of domestic minimum taxes means very large multinational companies would pay a minimum 15% where their profits are generated.  That does have advantages for Guernsey, but this change applies to companies with global revenues of at least 750m euros meaning its impact on local public finances will be limited and it would not on its own fill the significant shortfall we face.

The Tax Review already assumes that changes to these international corporate tax rules would mean an additional £10m is raised and based on these emerging international agreements alone, that figure still looks like a good estimate.

However, in response to feedback from the community and from States Members, we commissioned an independent analysis of potential ways to raise more revenues from business.  It remains very unlikely that the full £85m shortfall could be met by changes in corporate taxation, but there may be ways to increase the contribution made by businesses.

Ultimately, our decision will be based on providing certainty and simplicity.  It is very important that we retain an attractive business environment so that we remain competitive in a very finely balanced offshore market. We continue both to monitor the position of other jurisdictions and to work closely with industry, to inform Guernsey's approach to implementing the OECD proposals."

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