But he warned that it was unlikely to fill an expected £85m. annual funding gap for public services, as he provided an update on the OECD-led global corporate tax overhaul, which Guernsey has signed up to and coordinated with the Isle of Man and Jersey to ensure the islands‘ interests are ‘well represented’.
The development of domestic minimum taxes means very large multinational companies will pay a minimum 15% where their profits are generated – which had ‘advantages’ for Guernsey, said Deputy Ferbrache.
‘But this change applies to companies with global revenues of at least 750 million euros, meaning its impact on local public finances will be limited and it would not on its own fill the significant shortfall we face.
‘The tax review already assumes that changes to these international corporate tax rules would mean an additional £10m. is raised and based on these emerging international agreements alone, that figure still looks like a good estimate,’ he said.
‘However, in response to feedback from the community and from States members, we commissioned an independent analysis of potential ways to raise more revenues from business.
‘It remains very unlikely that the full £85m. shortfall could be met by changes in corporate taxation, but there may be ways to increase the contribution made by businesses.’
But he also stressed the importance of Guernsey remaining competitive internationally.
‘Ultimately, our decision will be based on providing certainty and simplicity. It is very important that we retain an attractive business environment so that we remain competitive in a very finely balanced offshore market.
‘We continue both to monitor the position of other jurisdictions and to work closely with industry, to inform Guernsey’s approach to implementing the OECD proposals.’
The OECD has been working on a global solution to reform the international corporate tax framework based on two work streams. The States said Pillar 1 was essentially a proposal for partial re-allocation of taxing rights and Pillar 2 proposed that large multinational enterprises will pay a minimum effective rate of tax of 15% on their profits. These proposals seek to address issues linked to the increasing globalisation and digitalisation of the economy.
An overwhelming majority of jurisdictions, including Guernsey, Jersey and the Isle of Man, reached agreement on the proposals and the detailed implementation plan announced by the OECD in October 2021.
Since then, technical discussions have continued to develop model rules, commentary and the multilateral instruments/conventions needed to implement them. This work is ongoing, with the proposals continuing to develop. It is expected that Guernsey will implement the minimum standards contained within the proposals – the Pillar 1 minimum standard and the Pillar 2 subject to tax rule, which applies to double tax treaties.
The other element of Pillar 2 – GloBE - has been designed so that jurisdictions are not obliged to adopt the GloBE rules, but must accept the application of them by other jurisdictions.