In a recent press release the Treasury Ministers of Guernsey, Jersey and the Isle of Man announced there will be a joint approach to the Organisation for Economic Co-operation and Development’s (OECD) Pillar Two model rules for domestic implementation of 15% global minimum tax. This new rate will apply to large multinational businesses with a group turnover of more than €750 million from 2025, though commence in certain other countries such as the UK from 1 January 2024.
The Isle of Man also confirmed “the majority of companies that the new rules will not apply to them and that they remain within the Island's established 0/10% tax regime".
Global minimum tax under Pillar Two
Global minimum tax under Pillar Two ensures multinational enterprises pay a minimum level of tax regardless of the jurisdiction in which they operate and seeks to address tax base erosion and profit shifting practices that allow multinational enterprises to minimise their tax liabilities.
The above announced common approach comprises the adoption of the Income Inclusion Rule (IIR) and the Qualified Domestic Minimum Top-Up Tax (QDMTT). Which are the two important components of the global minimum tax framework proposed under the OECD Pillar Two.
IIR
The IIR aims to ensure that certain income items are included in the tax base, regardless of whether they are taxed at a lower rate or exempt in another jurisdiction.
QDMTT
QDMTT serves as a mechanism to ensure that multinational enterprises pay at least the agreed minimum tax rate in their home jurisdictions, even if the tax paid in a particular foreign jurisdiction is lower. If the tax paid on income earned by a multinational enterprise in a foreign jurisdiction is below the agreed minimum tax rate, the home jurisdiction of the multinational enterprise would impose a top-up tax to bring the overall tax liability up to the minimum rate.
The reason for the announcement at this stage is to allow businesses time to prepare.
Get in touch
If you have any questions regarding the announced changes or would like to discuss any aspect of Pillar Two further, please get in touch with Chris Danes.
