Following on from the Crown Dependencies re-affirming their commitment to implementing the Organisation for Economic Co-operation and Development's Pillar Two framework for accounting periods commencing on or after 1 January 2025 (see our briefing here), Guernsey has announced further details of the Pillar Two rules it intends to implement.
Pillar Two
In addition to the introduction of an "Income Inclusion Rule" that was previously announced, Guernsey also intends to implement a "Qualified Domestic Minimum Top-Up-Tax". The Income Inclusion Rule imposes a top-up tax on a parent entity in respect of the low taxed income of a foreign subsidiary. The Qualified Domestic Minimum Top-Up-Tax will bring the effective tax rate to 15% for in-scope entities in Guernsey that are not already charged an effective tax rate of 15% or more. Whilst this is consistent with the previous announcement made in May 2023, this confirms Guernsey's preferred route for Pillar Two implementation.
Guernsey will shortly be engaging with the business community on some specific design elements as part of the legislative drafting process.
Comments
Pillar Two rules only apply to groups with more than €750 million global annual revenue, and there are various exemptions, including those for investment funds, real estate investment vehicles and certain holdings entities. Many companies will therefore fall outside the scope of the new Pillar Two rules with the existing corporate income tax regime continuing to apply. Larger structures should now, however, be analysing whether they are in scope and seeking to understand the impact for their respective operations.
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