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Jersey could net tens of millions of pounds in extra revenue each year as it responds to a global effort to stop multinationals shifting profits around the world.
Affecting around 1,000 Jersey companies, the Government's proposed clampdown could see companies which have more than €750m of income globally forced to pay 15% tax to the Exchequer on the profits they make in the island.
The plan has been published in a policy paper which sets out the Government’s response to new, internationally agreed rules aiming to close tax loopholes in a world where vast sums of money can be wired around the world at the touch of button.
Last October, 137 countries agreed to enforce a corporate tax rate of at least 15% and a fairer system of taxing profits where they are earned in response to concerns that multinational firms were re-routing their profits through low tax jurisdictions.
The Organisation for Economic Cooperation and Development, an intergovernmental organisation which is implementing the decision, has broken it down to two ‘pillars’ – the first applying to the world’s biggest multinationals, including Google and Amazon, and the second to a much larger group which earn at least €750m of income each year across all of their operations.
Pictured: Amazon was one of the global tech giants that the OECD had in mind when it proposed a global minimum corporate tax rate.
The first pillar, which obliges companies to pay tax in the country where their customers are based, does not apply to Jersey as the island is not home to the tech giants it covers, which must have a global annual turnover of more than €20bn.
Some Jersey firms do, however, fall within the scope of the second pillar – around 2.5% of the 40,000 companies based in Jersey, or 1,000 firms, could be subject to a tax rate of 15%.
At the moment, this is a position set out in a ‘reflections’ paper, which the Government has published before next month’s pre-election 'purdah' period, in order to begin a consultation with the finance industry before Ministers are limited in what they can say and do.
It will be up to the next States Assembly to bring in the new tax rate if it decides to follow the recommendations published this week.
External Relations Minister Ian Gorst said: “We have been engaging with the OECD for some time, and are committed to maintaining tax simplicity and certainty to support the stability and attractiveness of the Island’s business environment.
“Our work on the two pillars, and the feedback that we would like to receive from stakeholders will ensure that we remain globally competitive and compliant with international standards.
“The Government has always held the view that international tax standards should be developed on a global basis by organisations such as the OECD.
“It ensures that the principle of a ‘level playing field’ is applied among tax jurisdictions globally, and is critical to balance the interests of small and developing jurisdictions with those that are larger and more developed.”
Pictured: External Relations Minister Ian Gorst also has responsibility for financial services.
The Government has concluded that in implementing the OECD’s ‘Global Anti-Base Erosion’ rule, the best choice for Jersey “may be” to introduce a 15% domestic minimum for those companies meeting the 750m-euro threshold.
However, investment funds will be excluded, as will companies that make less than £10m profit.
Senator Gorst said that opting for the 15% rate was not based on a desire to raise revenue in the short term, but would only be introduced if it was sustainable in the medium to long term.
He added that he did not know how much extra money it would bring in, although Guernsey – which has signed up to the same plan, along with the Isle of Man – had estimated that it would bring in an extra £10m a year for them.
“Jersey could be multiples of that £10m figure,” said Senator Gorst.
He said that the new rate did not mean that Jersey was moving to a ‘zero-ten-15’ tax system, as ‘zero-ten’ was based on a different calculation to the ‘Pillar Two’ rules.
There will now be a three-month consultation period. The OECD has said that it wants the new rules to apply from 1 January next year if a 'critical mass' of countries bring them in by then.
Jersey, however, has said that the earliest date it will implement the rules is 1 January 2024, if the States Assembly passes the necessary legislation.
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