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Much has been said about the recent G7 decision to pursue a base global tax rate of at least 15% (the Global tax rate). Some call it the twilight of offshore jurisdictions. Should Jersey be worried?
The initiative appears to be aimed at well-known multinationals who use the gaps in the international financial system to minimize their tax contributions.
The implementation of a worldwide tax rate would, on its face, remove Jersey’s ability to provide an inviting business environment for doing business. However, the impact of the proposals may be less severe than the headlines suggest. This article explains why a headline tax rate might not be too tight after all.
Global tax rate could help Jersey shed its reputation as a ‘tax haven’
The “Zero-Ten” corporate tax system, under which corporation tax is set at 0% for most Jersey companies, was introduced over ten years ago. Following the harsh comments that Jersey received from the European Parliament’s TAX Committee in 2016 regarding the 0% rate, Zero-Ten must now be reformed anyway. No matter how convincing Jersey’s arguments have been to refute the (unfair) perception that this is a tax haven, the 0% rate remains an albatross around the island’s neck from a point of view. public relations.
A global tax rate would redefine Jersey’s role in the world of financial services.
Global tax rate can help rebalance Jersey tax revenues
The Zero-Ten system may not have helped the personal finances of the local population too much, either; he played an important role in shifting the island’s tax revenues from being paid primarily by corporations, to being primarily paid by individuals.
Before the introduction of Zero-Ten, foreign entities paid £ 600 per year to register in Jersey. Following the introduction of Zero-Ten, this fee fell to £ 0. In 2002, corporate tax income represented 57% of Jersey’s total tax pot, and personal income only represented 43%. The latest published figures show that the tax paid by businesses now accounts for just 19.5% of revenue, with local residents paying the rest.
The introduction of Zero-Ten may have forced the government to introduce the GST and attract more white-collar workers and immigrants ‘2.1 (e) s’, to make up for the corporate tax shortfall. The resulting population growth may have pushed up the cost of living on the island and pushed up house prices.
A global tax rate is expected to increase Jersey’s corporate tax, which could, in turn, reduce pressure on local residents to cover Jersey’s long-term budget deficits.
The global tax rate will not be introduced for some time, giving Jersey time to adjust and prepare
Comprehensive tax rate proposals are still in their infancy. Once they are finalized by the G7, which will not be an easy negotiation in itself, they will have to be approved by the G20 led by a hostile China.
Surprisingly, the global tax rate can meet the most resistance from individual states and lobbyists in the United States themselves. Delaware and other low-tax jurisdictions such as Florida and Nevada are arguably the world’s worst offenders when it comes to tax transparency; they will likely fight tooth and nail against President Biden’s proposals.
All countries agree that the provisions will only be adopted globally when they can be applied equally everywhere. Without a level playing field, no country will be required to implement a new tax system that puts it at a competitive disadvantage.
In short, Jersey has time on its side to adapt its tax code and its ‘Jersey PLC’ marketing to take advantage of the opportunities that a global tax rate could bring. Jersey’s relative agility compared to its bigger rivals may allow it to reinvent itself to stay relevant in a world with a base global tax rate.
A basic global tax rate may not have a significant impact on Jersey’s financial services industries
The main driver behind the introduction of the basic global tax rate is to ensure that the highly profitable multinationals such as Apple, Facebook, Amazon and Google pay their fair share into government coffers. These companies are expected to be the hardest hit by the G7 proposals which will focus intensely on them.
However, it is likely that Jersey’s blue chip industries – the private funds and private wealth management sectors – will either be exempt from these corporate tax proposals or will not be affected in the first place. The current G7 proposals are relatively limited and investment funds, which provide a valuable gateway to the UK and the EU for capital, are unlikely to be targeted.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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