Channel Islands and Isle of Man Advance Implementation of OECD Pillar Two Tax Framework

Guernsey, Jersey, and the Isle of Man are progressing with their implementation of the OECD's Pillar Two Framework, as part of their commitment to enhancing global tax transparency and fairness. In Guernsey, the Policy and Resources Committee is set to propose new policies aimed at introducing an income inclusion rule (IIR) and a qualified domestic minimum top-up tax (QDMTT) by 2025. These measures will ensure a 15% effective tax rate for large multinational enterprises. Similarly, the Isle of Man announced plans for a QDMTT effective from January 2025, targeting multinational enterprises with significant annual turnover, while continuing to evaluate the relevance of an IIR. Jersey, following its May 2023 commitment, is set to introduce legislation incorporating an IIR and a standalone multinational corporate income tax (MCIT) for in-scope multinational groups, ensuring a 15% effective tax rate on profits.

Guernsey

In a press release, Guernsey announced that it is taking the next steps in its plan to implement the OECD's Pillar Two Framework following the 19 May 2023 Crown Dependencies joint statement.

The Policy and Resources Committee will soon lodge a policy letter proposing the introduction, from 2025, of an income inclusion rule (IIR) and a qualified domestic minimum top-up tax (QDMTT) to provide for a 15% effective tax rate for large in-scope multinational enterprises.

The IIR imposes a top-up tax on a parent entity with a foreign subsidiary with low-taxed income, while the QDMTT will apply a 15% effective tax rate for in-scope entities in Guernsey that are not already taxed at an effective tax rate of 15% or more.

The three states consult the business community on specific design elements of the proposal as part of the legislative drafting process.

Isle of Man

In a press release of 20 May 2024, the Isle of Man announced its intention to introduce a qualified domestic minimum top-up tax (QDMTT), effective from 1 January 2025. The QDMTT will ensure that multinational enterprises (MNEs) with annual turnover exceeding EUR 750 million pay a minimum tax rate of 15% on the profits they generate on the island.

According to the government, the Isle of Man has a small number of MNEs that have their ultimate parent entity located on the island. Policymakers are currently evaluating whether an income inclusion rule (IIR) would be relevant for the island. A final decision is expected later this year. The government will continue engaging with affected businesses while preparing the necessary legislation, which will be lodged with parliament in the autumn.

Jersey

Following through on its May 2023 commitment, Jersey recently announced plans to introduce a new law implementing the OECD's Pillar Two according to its May 2024 statement with regard to its implementation plans.

Jersey intends to introduce the following legislation for groups in scope of Pillar Two (i.e. multinational group companies with global annual turnover of more than EUR 750 million), with accounting periods beginning or after 1 January 2025:

• an income inclusion rule (IIR); and
• a standalone multinational corporate income tax (MCIT), which will apply alongside Jersey's existing corporate income tax regime.

The MCIT will align with the OECD GloBE Model Rules so that Jersey companies and Jersey branches of in-scope multinational groups pay an effective tax rate of 15% on their profits. The government considers that the new MCIT is the right approach to implement Pillar Two for Jersey. This will address certain unintended double taxation challenges that Pillar Two implementation creates for some taxpayers.

According to the government, the MCIT will operate independently of the existing tax regime in Jersey, thereby reducing the need for top-up calculations and simplifying administrative processes.

Jersey will not be enacting an undertaxed profits rule (UPR) at this stage.

Final details of the new MCIT are being finalized in the coming weeks. Jersey plans to publish draft IIR and MCIT legislation this summer when it is submitted to the States Assembly (Jersey's Parliament).

Note: The majority of businesses in Jersey will be out of scope of Pillar Two and the established 0%/10% corporate tax regime will continue to apply to them.