The Deputy tasked with reviewing corporate tax has played down fears there will be an exodus of business from the island – but the States has directed Policy & Resources to consider being more cautious in how it calculates global minimum taxes for companies.
Deputy David Dorrity successfully convinced colleagues that P&R should follow Jersey in how it forecasts revenue from Pillar 2 global minimum tax rules which forces the largest multinational companies with revenue over €750m to pay 15% on profits to the country where they do business.
This was based on concerns that the States may be overestimating the amount of revenue the tax will bring in which has the effect of overstating the current financial health of the island.
Pillar 2 taxes were introduced locally at the start of 2025, but none of the cash will be collected from companies until 2027, with the treasury forecasting it will bring in £40m per year.
Deputy Dorrity said he was also concerned that the United States had pulled out of the scheme which he said could “create an uneven playing field”.
He said the purpose “is not to criticise the work of our officers or their professionalism”, but to ensure there is a “prudent and proportionate safeguard” to calculating future corporate tax revenues.
Deputy Charles Parkinson, P&R’s lead for the tax review, said comparisons are difficult to make with Jersey because its economy and tax system are different, but he reiterated his long-standing view that Guernsey’s revenue estimate from the tax is “already excessively cautious”.
He noted that Guernsey has a large captive insurance sector where most of the cash from Pillar 2 is expected to come from, whereas Jersey has a bigger banking sector which is more mobile and volatile.
The official assumption is that around 40% of local captive insurance companies will move away in response to the new tax, but Deputy Parkinson said this is “far too pessimistic” and that it’s harder to relocate insurance companies than banks.
He said the introduction of Pillar 2 has been known for years and recited anecdotal evidence that major players in captive insurance locally “nearly all seem to be staying”.
But he admitted it was “very unfortunate” the United States had pulled out of the initiative but insisted it wouldn’t be the end of efforts to charge minimum rates of tax on large companies globally.
Some Guernsey-based companies are American owned and will be impacted, but many will still fall in the scope of the tax, he added.
Some also raised concerns that the UK is investigating building up its own captive insurance sector which could suck business away from Guernsey and hit corporate tax receipts in the future.
But Deputy Parkinson defended the local regulatory and professional services environment which he said encourages companies to operate offshore and not in London.
Deputy Mark Helyar agreed there is “no rush to the door at the moment” but noted that many insurance companies are no longer trading and are in the process of being wound up, and that there is no record of which companies choose not to come to Guernsey.
He also stressed that investment in the UK is likely to be hit as a result of its financial woes and “if it catches a cold we will catch it as well”.
Deputy Gavin St Pier, Vice-President of P&R, said criticisms contained “a shoal of red herrings” and while the committee is taking a different approach to Jersey in calculating behavioral changes of companies he committed to review processes to ensure accuracy.
27 voted in favour of the amendment, while seven voted against, five abstained and one was absent.