Guernsey and Jersey have today issued a joint statement with the Isle of Man on their intentions to implement the OECD global initiative to set a minimum effective tax rate for the world’s largest multinational enterprises, known as Pillar Two.
The Islands have announced their intention to implement an “income inclusion rule” and a domestic minimum tax to provide for a 15% effective tax rate for large in-scope multinational enterprises ("MNEs"), from 2025.
The Islands will monitor implementation internationally and adapt their implementation of the tax rate accordingly to global developments.
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Pillar Two is a new set of international tax rules that seek to establish a global minimum corporate tax rate. Global anti-base erosion rules ("GloBE rules") will impose top-up taxes where the effective rate of tax of a MNE in a jurisdiction is below the global minimum corporate tax rate of 15%.
This means that in-scope MNEs are required to pay a 15% minimum effective rate of tax in every jurisdiction in which they operate. GloBE rules will apply to groups with more than €750 million global annual revenue, and there are exclusions for investment funds, real estate investment vehicles and certain holding entities.
Essentially, once the GloBE rules are implemented, where a Guernsey or Jersey tax resident company that is part of an in-scope MNE has an effective tax rate in Guernsey or Jersey that is below the 15% minimum, it must pay a top-up tax to bring its effective tax rate up to 15%. This top-up tax is the "income inclusion rule".
These rules only apply to groups with more than €750 million global annual revenue, and there are various exemptions, including those for investment funds, real estate investment vehicles and certain holdings entities. Many companies will therefore fall outside the scope of the new GloBE rules.
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