G7 decision sparks tax rethink call

Tuesday 08 June 2021

Moves towards a global minimum tax won't spell the end for Jersey’s finance industry – but should spark a major rethink of the current tax regime, the island’s key business lobby group has said.

Last week, the G7 – a group of the world’s richest nations – agreed a global minimum tax rate of 15% following calls by the US Administration for a new international standard to stop companies from shifting their profits to so-called ‘tax havens’.

However, the plan still requires approval from the G20 and Organisation for Economic Cooperation and Development (OECD) to progress further.  

The OECD has taken a lead on developing the proposals, which come in two parts: Pillar 1, which deals with digital companies that are accessible everywhere but don’t have operations in each country, and Pillar 2, which is about ensuring multi-national companies pay a ‘global minimum’ amount of tax. 

Some campaigners suggested the G7’s decision to back the proposal for a global minimum rate was a death knell for the attractiveness of low-tax jurisdictions like Jersey and Guernsey, whose corporate tax rate on profits is 0%, while financial services institutions pay 10% - a regime known as 'zero-ten'.

But finance leaders have said that’s unlikely to be the case. 

Jersey Finance CEO Joe Moynihan emphasised that the proposals were aimed at “tackling large multinational companies, particularly large tech companies, which are not a significant feature of Jersey’s business model.” 

Pictured: Jersey Finance CEO Joe Moynihan.

He continued: “The proposed design of Pillar 2 also aligns closely with Jersey’s existing tax model… And the design of Pillar 2 makes provision for the unique role of exempt investment funds and vehicles.

“This is significant for Jersey, which manages more than $500bn in investment fund capital, put to work all over the world using the island’s ability to provide a stable, straightforward platform for cross border funds business.”

Justin Clapham, Chair of the Chamber of Commerce’s Finance Committee, was similarly confident that the global minimum tax plans would not spell the end for “Jersey and all other grubby little tax havens”, as some “doomsayers” had predicted.

However, he said that the changes should nonetheless be the catalyst for a rethink of Jersey’s tax system.

“The current proposals for certain companies to have their profits taxed as a minimum global rate will initially have a very small effect on business in the island and the island’s finance industry will continue to flourish, but there can be no doubt that the current zero-ten system will need some modification over time.” 

Pictured: Chamber of Commerce Finance Committee Chair, Justin Clapham.

He added: “Chamber has been pressing Government for complete tax reform as the basic law is stuck in the 1900s, and maybe we will finally achieve our wish for a new Tax Law that is fit for purpose for all of Jersey, not only the finance industry.

"It is too early to tell what changes will be needed for zero-ten but Government need to approach them carefully in a considered way and not get caught up in hype and make any knee-jerk changes or comment that leaves the island vulnerable for attack.”

Despite the global minimum tax plan having made headlines in recent weeks, Mr Moynihan reminded islanders that discussions on how to tackle multinational profit-shifting and how to ensure big tech companies “pay tax in the places where they do business” had been “ongoing for months – years in fact”. 

He said it was Jersey’s firm belief “as a jurisdiction that any reforms must be implemented on a level playing field, balancing the interests of small jurisdictions as well as larger ones; developed as well as developing countries”, adding: “…This is a once in a generation opportunity to provide some robust, sensible solutions to improve the international tax landscape and provide consensus and certainty – but it must be done right, consistently and with full agreement at international level. 

“That progress is now being made is significant and important, and we remain fully engaged with the key bodies involved as things progress over the coming weeks and months and the full details are agreed internationally – that may take some time.”

Responding to the G7’s decision, Jersey’s External Relations Minister, Senator Ian Gorst, said: “This represents an important step forward in an ongoing discussion, ahead of formal negotiations which continue within the OECD, including the OECD Inclusive Framework meeting which takes place 30 June to 1 July 2021. 

“The Government of Jersey has always maintained that international tax standards should be developed on a global basis by organisations such as the OECD, rather than on a regional basis, as this helps protect the principle of maintaining a level playing field among tax jurisdictions globally, and ensures the interests of small countries are balanced with those of larger countries."

Pictured: External Relations Minister, Senator Ian Gorst.

He continued: “As a member of the Inclusive Framework on Base Erosion and Profit Shifting (BEPS), Jersey continues to play a full and active role in the OECD discussions on developing proposals for international tax reform.  This comprises two pillars which deal with the tax challenges arising from digitalisation – proposals on profit allocation (Pillar 1) and proposals for ensuring that large multinational enterprises pay agreed minimum effective taxation on cross-border profits (Pillar 2).

“We are continuing to engage closely with OECD partners on the final detail of the framework to be agreed on Pillars 1 and 2

“There are 139 countries in the Inclusive Framework – large and small, developed and developing. Any agreement will have to meet the needs of small and large countries, developed and developing. Cross-border tax reform is a truly global issue, so it’s vital the interests of all jurisdictions are reflected in the final agreement.”

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