Gary Burgess: Joe Biden, global tax, and a game of 3D chess
It’s not quite Joe Biden shouting “jump” and the Channel Islands replying “how high?”, but it is pretty apparent Guernsey and Jersey are being bumped into some big tax changes by US president Joe Biden.
His demand that there’s a new global minimum rate of corporation tax of 15% will be discussed by finance ministers from the world’s biggest nations tomorrow (Friday 4 June).
It means our zero ten tax system, where most local firms pay 0% on their profits while financial institutions pay 10% is effectively dead in the water.
What does that mean for our competitiveness on the world stage and for the 20,000 people across Guernsey and Jersey who work in the financial services sector?
What impact could it have on the islands’ economies where finance creates 40% of the wealth in the local economy?
And what of the local firms who currently pay no corporation tax who’ll likely face a 15% levy on their profits?
So many questions.
As I understand it, both Guernsey and Jersey will move to a 15% headline rate if the G7 wave through this new global standard, but that magic number will merely be a starting point.
For example, one or both islands could offer various ‘carve outs’ to that rate, for example declaring an exemption for profits derived from agriculture.
In other words, a global 15% will actually mask jurisdiction-by-jurisdiction tinkering which makes the effective rate much lower.
The two starting points for this change were the push to get the massive multi-national firms, and especially the tech giants, to cough up more taxes in the places where they do lots of business – but this is also about Joe Biden gaining cover to push through his own planned domestic hike in corporation taxes.
As ever, politics is a big game of 3D chess which – this time – has Jersey and Guernsey caught up in the power play.
It is easy to shrug these things off as yet another spat about tax, but this one has the potential to affect every single person in the islands so warrants our attention.
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