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15% tax rate for multinationals from 2025 to provide boost for Treasury

15% tax rate for multinationals from 2025 to provide boost for Treasury

Friday 19 May 2023

15% tax rate for multinationals from 2025 to provide boost for Treasury

Friday 19 May 2023

The profits of hundreds of Jersey-based companies will be taxed at 15% from 2025 as part of an international deal – providing a financial shot in the arm to the Treasury, according to the Government.

It is not yet known how much that boost to public finances will be; however, what is known is that Jersey’s zero-ten regime will be widened to include a 15% corporate tax rate for a number of specific businesses in the island, estimated to be in the high hundreds.

Those businesses are part of multinationals whose global turnover exceeds €750m a year and therefore fall within the scope of a worldwide initiative, overseen by the OECD, which 130 countries signed up to in 2021.

The OECD initiative is an effort to stop global multinationals shifting their profits around the world to avoid paying tax.

Jersey, along with the other Crown Dependencies, have today announced how they plan to implement this global standard.

As part of the initiative, the OECD has given jurisdictions number of options. Principally, multinationals will pay a minimum effective rate of 15% corporate tax in every country they operate in. 

That could mean a company like Amazon, which is headquartered in Seattle, pooling all the profits of its worldwide operations which currently reside in places which have a below-15% corporate tax rate and paying the balance 'top-up' to the United States Treasury. 

However, signatories to the standard also have the option to introduce their own minimum 15% corporate tax rate, ensuring that multinational subsidiaries pay the 15% wherever they happen to be based.

The Crown Dependencies have chosen to take this route, arguing that it will be far simpler for subsidiaries to pay their tax locally rather than go through the complexity of wiring profits back to their parent company.

Jersey is also home to a small number of large multinationals who have their headquarters in the island. Legislation will also be introduced to allow them to pool their global profits locally if they wish and pay the 15% ‘top-up tax’ to Revenue Jersey.

The UK and European Union have committed to implement the ‘OECD Pillar Two Framework’, to give the standard its proper name, in 2024. However, the Crown Dependencies have said they will introduce it together from 2025, while reserving the right to delay its decision depending on how other jurisdictions respond.

Jersey is keen to stress that for the vast majority of companies in the island, there will be no change: this only affects large businesses with significant global sales.

The Government has also said that affected businesses have already been briefed so are aware of the proposed changes. It is also confident that, because of the global deal, there will be no flight of business out of the island.

The 2025 “intended” implementation, it adds, will allow the Crown Dependencies to assess the situation and learn from elsewhere before fixing its own start date.

Treasury Minister Ian Gorst said: “The Government is monitoring international developments on Pillar Two very closely. 

“Jersey is very well positioned to adapt to these changes: we already have a well-developed corporate tax system; and we have a seat at the table as a member of the OECD Inclusive Framework Steering Group, which is at the heart of decision making for this agenda.

“Jersey will continue to make the right tax choices for the island’s long-term success as a global business and professional services centre. 

“I am determined, through careful engagement with industry at home and around the world, to ensure Jersey maintains its international reputation for competitiveness and for providing businesses with administrative certainty and simplicity into the future.”

The joint statement from the Crown Dependencies:

“The governments of Guernsey, Jersey and the Isle of Man (‘the Islands’) announce that they have reached a decision on a joint approach to the OECD’s Pillar Two framework 1, based on current international implementation of Pillar Two and discussions at the OECD. This decision ensures certainty for businesses in each of the three jurisdictions.

“Our intention is that this approach will comprise the implementation of an “Income Inclusion Rule” and a domestic minimum tax to provide for a 15% effective tax rate for large in-scope multinational enterprises, from 2025. 

“The Islands will continue to work together, monitoring implementation internationally and adapt accordingly to developments which may require adjustments to our own implementation plans, and remain committed to continuing to offer attractive and globally competitive investment environments.

“The Islands will continue to engage with diverse and widespread stakeholders – across a very broad range of sectors and geographies – to gather further information and to provide appropriate notice to allow businesses to prepare for these changes.

“Our Islands have well-established and stable corporate income tax systems, and longstanding and independently assessed track records of meeting international standards. 

“We are proud of our global leadership in tax cooperation, combatting money laundering and countering the financing of terrorism, and in providing appropriate and effective transparency.”


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