Channel Islands to bring in 'pillar two' tax for large companies under new global scheme

Jersey's government says the island needs to "play its part" in introducing a new tax for the largest multinational companies.

The Crown Dependencies last week confirmed they would implement the 'pillar two' tax, which is designed to create a level playing field across more than 130 jurisdictions.

It is being led by the OECD, an organisation that works with governments around the world to develop economic policy.

The changes would mean companies based in the islands with a turnover of more than €750 million euros would be taxed at 15% from 2025.

Guernsey estimates it could bring in more than £30 million, while Jersey is carrying out an economic assessment with an initial figure expected in the Government Plan in July.

Jersey currently does not have a corporate tax but certain financial services companies are taxed at 10%, utility companies at 20%, and retail companies with more than £2 million in turnover face tariffs up to 20%.

Guernsey similarly has a 0% standard rate of company tax but does levy some industries at 10% and 20%.

Deputy Ian Gorst, Jersey's Assistant Treasury Minister, told ITV News: "Those businesses will have to pay the tax wherever they are globally and therefore they can't just leave Jersey and avoid paying the tax.

"It's really important that we play our part in the development of this international tax, as we have done, and then we implement it here so that Jersey profits are taxed in Jersey."

He added this tax would only apply to around 1,400 companies and that the Government is "not complacent".

Deputy Gorst explained: "There are many reasons why Jersey is competitive and attractive to large multinational companies and we will make sure that we continue to be."

Announcing Guernsey's plans last week, Chief Minister Deputy Lyndon Trott said: "Guernsey wants to provide certainty and stability for businesses in the island, ensuring Guernsey remains competitive while staying at the forefront of emerging global norms in tax matters."

'Pillar two' was designed to stop multinationals from putting their money into jurisdictions that offered them a more attractive rate of tax.

With an increasingly global economy, it is designed to tackle what is described as 'profit shifting'.

Now of course, the Channel Islands have often sold themselves as places with low taxes.

Locate Jersey, who help the wealthy move to the island, advertises "low personal and business taxes".

Meanwhile, Locate Guernsey publicises the fact it is a "low tax jurisdiction".

So the question is, does introducing this tax damage that selling point?

The key thing to remember is few businesses really will be affected by it - there are 40,000 in Jersey so just around 3.5% will face the tax.

It will also enhance the islands' reputations, as it is a sign they are following international tax norms.

Finally, it has the potential to bring in significant domestic revenues that could help budgets in Jersey and Guernsey.

But it does mark a major moment for these international finance centres, as many countries in the world seek to become more closely aligned in their tax policy.

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