15% global tax rate 'does not signal the end of zero-ten'

Monday 11 October 2021

The Government says it welcomes the “greater certainty” over a new 15% corporate tax rate for large multinational companies – which it thinks will not have a great impact on Jersey.

Significantly, the new tax rules do not replace domestic tax arrangements so, in Jersey’s case, they do not signal the end of zero-ten.

Instead, the first ‘pillar’ of the OECD-led reforms targets the world’s biggest companies, forcing them to reallocate a portion of their profits to the country where their goods and services are used.

The second ‘pillar’ obliges multinational companies that make more than €750m euros a year to pay a ‘Minimum Effective Rate’ of taxation on their global profits, set at 15%.

The Government say that the OECD proposals are “targeted in scope”, focusing on the world’s largest companies, and are anticipated to have “limited impact” in Jersey.

Pictured: US President Joe Biden previously called for a 21% minimum global tax rate for large multinationals but has been scaled back to 15%.

External Relations Minister Senator Ian Gorst, who also has responsibility for financial services, said: “The Government has continued to be fully engaged in detailed discussions on the form and implementation of the new proposed global tax rules, following initial agreement in July. 

“This is important to protect the island's interests as a strong, transparent and well-regulated international finance centre.”

Jersey is one of 136 jurisdictions that joined the consensus on the revised framework, along with the other Crown Dependencies.

Senator Gorst added: “The Government, alongside other jurisdictions, argued in favour of a fixed Minimum Effective Rate, as opposed to the original proposals of a rate of ‘at least 15%’ which lacked certainty. 

“We also supported the maintenance of the €750m profit threshold, consistent with the existing OECD country-by-country reporting threshold. 

“We are pleased that these important issues have been confirmed in the statement issued on Friday, providing greater certainty for taxpayers and limiting the scope of application of the new rules to the world’s largest companies.”

The OECD proposals, which will be considered by G20 Finance Ministers next week, exclude regulated financial services from the first pillar and funds from the second pillar.

The OECD has said that the minimum rate would see countries collect around $150bn in new revenues annually while taxing rights on more than $125bn of profit would move to countries where big multinationals earn their income.

When the initiative was first reported in May, Chief Minister Senator John Le Fondré said that the President of the United States should look “closer to home” before demanding global tax reforms of so-called ‘tax havens’ and other low tax jurisdictions. 

Back then, President Joe Biden and his administration was calling for a 21% Minimum Effective Rate.