Corporate Tax

The G7 International Company Tax Charge: A Good Factor For Jersey? – Tax

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Much has been said about the recent G7 decision to target a global corporate tax rate of at least 15% (the Global tax rate). Some call it the twilight of offshore jurisdictions. Should Jersey be concerned?

The initiative appears to be aimed at well-known multinational corporations that use discrepancies in the international financial system to minimize their tax contributions.

Adopting a global tax rate would, at first glance, take away Jersey’s ability to create a welcoming business environment in which to do business. However, the impact of the proposals may be less severe than the headlines suggest. This article examines why a global tax rate might not be too high after all.

A global tax rate could help Jersey shed its reputation as a “tax haven”

Jersey’s “zero ten” corporate tax system, which sets corporate income tax at 0% for most Jersey companies, was introduced over a decade ago. According to the strict comments that Jersey received from the TAXE committee of the European Parliament in 2016 at the 0% rate, Zero-Ten must now be reformed anyway. No matter how convincing Jersey’s arguments were to refute the (unfair) perception that it is a tax haven, the 0% rate remains an albatross around the neck of the island from a PR perspective.

A global tax rate would allow Jersey’s role in the financial services world to be renamed.

The global tax rate can help balance Jersey’s tax revenue

The zero ten system may not have helped the local people’s personal finances too much either; It has played a significant role in shifting the island’s tax revenue, which is mostly paid by corporations, to mostly private individuals.

Prior to Zero-Ten’s launch, overseas companies paid £ 600 a year to register in Jersey. After the introduction of Zero-Ten, this fee dropped to £ 0. In 2002, corporate tax revenue represented 57% of Jersey’s total tax pot, and income from private individuals represented only 43%. The latest published figures show that taxes paid by companies are now only 19.5% of revenues and local residents pay the rest.

The introduction of Zero-Ten may have forced the government to adopt the GST and attract more immigrant workers and “2.1 (e) s” to offset corporate tax shortfalls. The resulting population growth may have increased the cost of living on the island and propelled property prices higher.

A global tax rate should increase Jersey’s corporate tax revenue, which in turn can ease pressure on local residents to meet Jersey’s long-term budget deficits.

The global tax rate will not be rolled out for a while to give Jersey the time to adjust and prepare

The proposals for the global tax rate are still in the early stages. Once they are finalized by the G7, which in itself will not be an easy negotiation, they will have to be approved by the G20 under the leadership of a hostile China.

Surprisingly, the global tax rate can meet with the strongest opposition from individual states and lobbyists within the US itself. Delaware and other low-tax countries like Florida and Nevada are arguably the world’s worst offenders when it comes to tax transparency; They are likely to do whatever it takes to oppose President Biden’s proposals.

All countries agree that the provisions will only be adopted globally if they can be applied equally everywhere. Without a level playing field, no country is expected to introduce a new tax system that puts it at a competitive disadvantage.

In short, Jersey has time on its side to adjust its tax laws and “Jersey PLC” marketing to capitalize on the opportunities a global tax rate could bring. Jersey’s relative agility compared to its larger competitors could allow it to reinvent itself to stay relevant in a world with a global base tax rate.

A global base tax rate may not have a material impact on Jersey’s financial services sectors

The main reason for introducing the global base tax rate is to get hugely profitable multinational corporations like Apple, Facebook, Amazon and Google to pay their fair share into the treasury. These companies are likely to be hit hardest by the proposals of the G7, which will be studying them intensively.

However, it is likely that Jersey’s blue-chip industries – the private funds and private wealth management sectors – will either be exempted from these corporate tax proposals or will not fall within their scope at all. The current G7 proposals are relatively limited and mutual funds, which serve as a valuable gateway to the UK and EU for capital, are unlikely to be targeted.

The content of this article is intended to provide general guidance on the subject. Expert advice should be sought regarding your specific circumstances.

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