THE profits of hundreds of Jersey-based companies are likely to be taxed at 15% from 2025 as part of an international deal, according to the government.
It is not known by how much the move will boost public coffers, but it is understood that the number of businesses in Jersey which are affected is in the high hundreds.
These companies are part of multinationals whose global turnover exceeds 750 million euros a year and therefore fall within the scope of a worldwide initiative, overseen by the OECD, to which 130 countries signed up in 2021.
The move is an effort to stop global multinationals from shifting their profits around the world to avoid paying tax.
Jersey, along with the other Crown Dependencies, yesterday announced how it planned to implement this global standard.
As part of the effort, the OECD has given jurisdictions a number of options. Principally, multinationals will pay a minimum effective rate of 15% corporate tax in every country in which they operate.
That could mean a company such as Amazon, which is headquartered in Seattle, pooling all the profits of its worldwide operations which currently reside in places which have a below-15% corporate tax rate and paying the balance to the United States Treasury.
However, signatories to the standard have the option to introduce their own minimum 15% corporate tax rate, ensuring that multinational subsidiaries pay the 15% wherever they happen to be based.
The Crown Dependencies have chosen to take this route, arguing that it would be far simpler for subsidiaries to pay their tax locally rather than go through the complexity of wiring profits back to their parent company to be taxed there.
Currently, firms in Jersey pay no tax on their profits, unless they are a regulated financial services business, in which case they pay corporation tax of 10%, or are utilities, which pay 20%.
Jersey is home to a small number of large multinationals which have their headquarters in the Island. Legislation will also be introduced to allow these companies to pool their global profits locally if they wish and pay the 15% ‘top-up tax’ to Revenue Jersey.
The UK and European Union have committed to implement the new regime – called the OECD Pillar Two Framework – next year. However, the Crown Dependencies have said they will introduce it together from 2025, while reserving the right to delay the decision depending on how other jurisdictions respond.
Jersey is keen to stress that for the vast majority of companies in the Island, there will be no change, as the move only affects large businesses with significant global sales.
The government has also said that businesses ‘in scope’ have already been briefed, so are aware of the proposed changes. It is also confident that, because of the global deal, there will be no flight of business out of the Island.
Treasury Minister Ian Gorst said: ‘The government is monitoring international developments on Pillar Two very closely.
‘Jersey is very well positioned to adapt to these changes. We already have a well-developed corporate tax system and we have a seat at the table as a member of the OECD Inclusive Framework Steering Group, which is at the heart of decision-making for this agenda.
‘Jersey will continue to make the right tax choices for the Island’s long-term success as a global business and professional services centre.
‘I am determined, through careful engagement with industry at home and around the world, to ensure that Jersey maintains its international reputation for competitiveness and for providing businesses with administrative certainty and simplicity into the future.’