Global tax reform ‘not as end of the world as you think’

GUERNSEY’S treasury lead has welcomed the next step towards a global minimum 15% corporate tax rate.

Fitzroy Tax Services' Graham Parrott.
Fitzroy Tax Services' Graham Parrott.

Some 136 countries, including Guernsey, Jersey and the Isle of Man, have agreed to enforce a corporate tax rate of at least 15%.

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

Guernsey currently has a standard rate of 0% tax applied to most companies that are tax-resident here. However, income arising from certain activities is taxed at 10% or 20%.

Policy & Resources treasury lead Deputy Mark Helyar said that Guernsey was continuing to work closely with the OECD on international tax matters, participating at every stage of the discussions, to represent the interests of the islands.

‘Guernsey supports the objective of reaching agreement on a worldwide approach and a level playing field which, as we ourselves have previously argued, will help avoid the complexities of unilateral action by individual countries,’ he said.

‘Guernsey welcomes this further milestone and officials will continue to participate actively in the ongoing technical discussions, coordinating with Jersey and the Isle of Man.’

Fitzroy director and tax expert Graham Parrott has been following the developments with interest.

He noted that the local tax department would likely know how many businesses this new rule would affect and the fact that it was only a small note in the recent Budget means that the States seems to indicate it would not have a big impact locally.

The new rules, for which the detail is still being drawn up, will only affect companies with an annual revenue of 750m. euros or above. While that also means that any local companies with big revenue parent companies are likely to be affected, if the local operation is small, it might well be exempt.

Mr Parrott said his reading of the rules was that it was taking aim at large, multinational technology companies, often based in countries like Ireland and Luxembourg, rather than the sort of businesses based locally.

‘It’s wrong to say there will be no fall-out, but it is not as “end of the world” as you might think,’ he said.

He said that what would not be clear was how many businesses might choose not to move to Guernsey in light of the new rules.

He said he did note with concern that the new rules were showing a direction of travel towards restricting low tax jurisdictions, noting the New York Times headline that this was ‘a global deal aimed at ending tax havens’ and he said it was unclear what else might be coming down the road.

‘It’s all a question of the detail and where all this might lead,’ he said.

He said the latest deal had moved with surprising swiftness, with plans for it to be implemented in 2023, and said this might be due to countries having lost revenue during the pandemic and looking for ways to make up the shortfall.

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