EU’s push for tax standards could impact on Guernsey

THE European Union may require third countries to sign up to new global tax standards or risk going on blacklists, the European Commission has signalled.

The European Commission building in Brussels (29592906)
The European Commission building in Brussels (29592906)

The commission, which is one of the main bodies within the EU, has enthusiastically backed the introduction of minimum effective tax rates for multinationals to stop profit shifting from where the money is made to lower tax jurisdictions to avoid tax.

The Organisation for Economic Co-operation and Development is currently undertaking work to reach a deal on overhauling the international tax system – with the objective of reaching a deal by mid-2021.

This activity relates to so-called ‘pillar 1’ work around partial reallocation of taxing rights and ‘pillar 2’ discussions around minimum effective taxation of multinationals’ profits.

If agreed, the European Commission has said it will move to incorporate the tax changes into EU law and encourage other jurisdictions to follow suit.

That could have implications for jurisdictions such as Guernsey, which has a general zero corporate tax with a number of exceptions.

‘As reflected in the recent Communication on Tax Good Governance in the EU and Beyond, the commission will propose to introduce Pillar 2 in the criteria used for assessing third countries in the EU listing process, so as to incentivise them to join the international agreement,’ said the commission in a new document setting out its thinking on business taxation.

‘This is in line with the EU’s existing approach to use the listing process to promote internationally agreed good practices.’

The comments could be seen as a nod to pressure by MEPs to overhaul the EU’s Code of Conduct Group of business taxation, which assesses whether jurisdictions have harmful practices or not.

Guernsey has passed a previous assessment, which is seen as beneficial in terms of the economically critical finance industry being able to conduct business.

A recent report by MEPs appeared to have jurisdictions with low corporate tax rates in its sights – with a recommendation that a failure to implement a global minimum corporate tax rate could result in blacklisting.

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