Taxing multinational firms a balancing act for island
GUERNSEY can expect to take more tax from multinational giants through the OECD’s new inclusive framework, but the island will have to be careful not to drive business away in drafting local legislation.
KPMG Guernsey tax partner Tony Mancini said the States had little more than a year to follow the inclusive framework countries, including the UK, in drawing up new laws, and any hopes from politicians that a global 15% minimum rate for corporate tax might solve the island’s financial problems were wide of the mark.
The 15% rate, which is part of a package of tax measures from the OECD, has already been agreed by nations globally, but now has to be implemented into local laws.
But speaking at a webinar hosted by KPMG in the Crown Dependencies this week, Mr Mancini said that a straight 15% corporate tax rate would be likely to prove uncompetitive.
He proposed implementing minimum OECD standards alongside a domestic ‘top-up tax’ for those Guernsey companies which would otherwise be caught under the new rules. Without the top-up, the island would risk losing tax revenues to other jurisdictions, he said, and it was an approach seeming to be favoured by the UK and some other countries.
‘Ultimately this option is more complicated and not easy to operate, but it would generate some revenues from the Guernsey companies which are part of large multinational enterprises,’ he said.
Mr Mancini said Guernsey and the other Crown Dependencies – he recommended that all worked together in coming to a solution – had a range of options before the rules are expected to come into effect in 2023, with the final rules effective in 2024. The UK is anticipating its laws to become effective from April 2023.
A straight 15% rate could make the island uncompetitive for financial services and other sectors, he warned, as many firms would be below the OECD threshold, which targets large multinationals with an annual turnover of 750m. euros. ‘It would be self-defeating and drive business away.’
Mr Mancini urged finance sector representatives to get involved in forthcoming consultations on the tax changes.
‘We have got to align impact with competitiveness and the potential loss of tax revenues,’ he said.
Guernsey has been supportive of the process to date and officials have been working with Jersey and the Isle of Man.
