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An EU-funded research group has raised doubts about the impact of a global minimum tax rate, of which Guernsey is signing up to.
136 jurisdictions have agreed to the plan and Guernsey, Jersey and the Isle of Man announced their intention to align with it via an ‘Income Inclusion Rule’.
This minimum tax rate was discussed during a recent debate on the Funding and Investment Plan, after Deputy Charles Parkinson tried to launch a new corporate tax regime with a general rate of 10-15%.
He said “corporate income tax reform is already on the slipway ready to be launched and is going to be launched whatever this assembly decides today”.
The OECD’s Pillar Two global corporate tax rules, which hundreds of countries have signed up to, will see companies with an annual turnover of at least £750m be taxed 15% or more on profits. That will be introduced in Guernsey from 2025 and is in essence a territorial tax regime, he said.
Pictured: Deputy Charles Parkinson.
Deputy Parkinson’s amendment lost, with opposing deputies arguing that Guernsey shouldn’t take the first step.
In any event, a research group has now published a proposal for a global 2% minimum tax on billionaires, and in doing so raised concerns about the incoming 15% minimum tax rate.
The Paris-based EU Tax Observatory, which was set up three years ago to inform tax policy in the union, argues that billionaires have been pushing the limits of the law by moving certain types of income, including dividends from company shares, through holding companies that usually serve no other purpose.
In its recently published first report, the group said: “These holding companies are in a grey zone between avoidance and evasion.
“To the extent that they are created with the purpose of avoiding the income tax, they can legitimately be seen as closer to evasion.”
The group explained that offshore tax evasion by wealthy individuals has shrunk.
It said: “Thanks to the automatic exchange of bank information, we estimate that offshore tax evasion has declined by a factor of about three over the last ten years. This success shows that rapid progress can be made against tax evasion if there is the political will to do so.”
However, it added: “The global minimum tax of 15% on multinationals, which raised high hopes in 2021, has been dramatically weakened.”
The EU Tax Observatory believe that a global minimum tax on billionaires, equal to 2% of their wealth, would raise close to US$250 billion – from less than 3,000 individuals – annually.
It also concluded that there has been a “large amount of profit shifting to tax havens, with no discernible effect of policies so far”.
The group is calling for a reform of the international agreement on minimum corporate taxation to implement a rate of 25% and remove the loopholes in it that foster tax competition.
Other recommendations include bringing in “mechanisms to tax wealthy people who have been long-term residents in a country and choose to move to a low-tax country”, creating a ‘Global Asset Registry’, and “strengthening the application of economic substance and anti-abuse rules”.
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