The Policy & Resources Committee was told to study Jersey in particular when deputies directed it to look into changing how it accounts for income expected from Pillar II global tax changes which started this year.
Four members of P&R abstained from voting on David Dorrity’s amendment in the States, and the deputy leading its wide-ranging company tax review, Charles Parkinson, voted against, but the motion was nonetheless approved by 27 votes to 7 in the Assembly.
‘In their Budget, Jersey has excluded any receipts for 2025, only beginning to include them once the income becomes reasonably certain from 2026 onwards, and in addition they have explicitly earmarked those receipts for investment or reserves rather than for recurring expenditure,’ said Deputy Dorrity.
‘This, to me, shows that Jersey recognises the volatility of this new revenue stream and is intentionally insulating its core spending commitments from the risk that the forecast amounts may never materialise.
‘Guernsey appears to have been more optimistic than Jersey in its forecasts. We are including assumed receipts earlier, for both 2025 and 2026, even though the actual cash will not be banked until 2027, and those forecast figures are then being used as part of our revenue planning despite the considerable uncertainty that surrounds them.’
Listen to our Shorthand States round-up of this week’s Budget meeting
Pillar II changes, led by the OECD, are intended to establish a minimum tax rate of 15% on profits of the world’s largest companies regardless of where they are trading or registered.
Treasury officials in Guernsey originally thought the changes would increase States income by about £10m. annually, but that forecast has now been raised to £40-45m. a year.
The difference in the previous and revised forecasts is equivalent to more than half of the additional net income in the GST-plus package agreed by the previous States, but now being reconsidered.
But some deputies are concerned that P&R is placing too much reliance on Pillar II receipts.
‘It is possible that, once global tax liabilities are equalised, the incentive to maintain a base here may diminish sharply,’ said Deputy Dorrity.
‘My fear is that while the receipts for the first year, and perhaps even the second, may indeed look impressive, they could then fall sharply thereafter or disappear completely.’
Deputy Parkinson defended Guernsey’s approach, arguing that if anything it was already too cautious.
He spoke of important differences between the finance sectors in Guernsey and Jersey. For example, unlike Jersey, Guernsey has a thriving captive insurance industry, which is expected to produce a substantial portion of the island’s Pillar II receipts.
He told the States that the revised forecast of about £40m. a year assumed that the Pillar II regime would cause 40% of the captive insurance industry to leave the island.
‘This seems to me far too pessimistic,’ he said.
Pillar II was first announced in 2019, providing companies with time to plan their responses before it was introduced this year.
‘If these companies were unwilling to pay it, surely they would have left us or at least be planning to leave, and we don’t see any sign of it. Far from 40% of captives leaving, they nearly all seem to be preparing to stay,’ said Deputy Parkinson.
Senior executives at a captive insurance company he chairs had recently told him they knew of no firm in the sector which was preparing to leave the island as a result of Pillar II.
‘I’m certain in my own mind that the receipts from Pillar II will be higher than those predicted by the treasury,’ he said.
Deputy Dorrity was also concerned that global agreement on minimum tax rates could be undermined by the United States recently pulling out of the initiative.
‘Many of the enterprises with a presence here are US-parented, and if those companies were to be exempted from the Pillar II revenues we are currently projecting could evaporate before they are ever received,’ he said.
Deputy Parkinson said that the US’s latest position mattered to Guernsey only ‘a bit’ because most multinationals with a presence locally were not US-owned.
He was also sceptical that the US position would cause Pillar II to collapse internationally.
You need to be logged in to comment. If you had an account on our previous site, you can migrate your old account and comment profile to this site by visiting this page and entering the email address for your old account. We'll then send you an email with a link to follow to complete the process.