Treasury triples cash expected from taxing large corporations

Tuesday 23 January 2024

The States have significantly upgraded the amount of tax it expects to collect from large businesses which make profits in the island by £20m a year, and the island’s top politician believes it could be even higher.

The OECD Pillar Two tax charges will come into effect for hundreds of jurisdictions from 2025 which will see a global minimum effective tax rate of 15% introduced for large multinational firms with overall turnover above €750m.

Treasury had estimated the total which could be raised from the select firms which fall into this category was £10m per year, but just before Christmas this was revised to £30m.

New data and guidance internationally had led to the upgraded forecast for the local coffers.

The charges are expected to hit most regulated banks and a large amount of international insurance activity, such a captive insurance, based in Guernsey, which are currently taxed at 10% and 0% respectively.

Policy & Resources President, Deputy Lyndon Trott described the revision as “a game changer” for funding major building projects this term.

But he added: “It doesn’t change the fact that long-term we still need solutions to make public finances sustainable, but it does allow us to be a bit bolder in investing in our community now, and we should do that."

Pictured: The news came as the duo announced their plan to fund Les Ozouets this morning.

In an amendment proposing an £88m spend to deliver the Guernsey Institute at Les Ozouets this political term, Deputy Trott and his Vice-President, Deputy Heidi Soulsby, said “work on the Pillar 2framework internationally has led to more certainty on the approach to setting the rules for such a tax which has enabled more detailed analysis based on the recent performance of the locally based companies which will be impacted”.

“These predictions are conservative as well,” Deputy Trott told Express. “We think the numbers may be even higher than we're saying in this amendment. But that gives us a great deal of flexibility around affordability."

The pair hope to service up to £55m in borrowing through this cash, which they said would “more than cover any borrowing costs” once they started to be collected in 2026.

“The estimated cost of servicing £55m of borrowing is £3.2m per year in interest and capital repayments assuming a 40-year term and an interest rate of 5.0%. The interest rate assumption has reduced from that used in the [Funding & Investment Plan] due to falling long term interest rates linked to lower inflation,” they said.

Deputies Trott and Soulsby also hope to persuade deputies to use up to £33m from reserves to fund Les Ozouets, despite the States agreeing in October to maintain current reserve levels. They are confident the revised tax position will allow it to be replenished by mid-2028.

“The general revenue reserves are in a healthy position and there were a couple of other good bits of news that we've received just before Christmas.That was the revision to our GDP in 2022, which surprised most of us, it really was very helpful at 4%, or just under 4%,” Deputy Trott said.

“In real terms, and our belief in expectations, that strength has continued into 2023. It will be a little while before we know whether that prediction is accurate. But that's my own personal prediction based on my close relationship with financial services. 2023 was a strong year.”

In December, I told the States that the 'Pillar 2' tax charge would bring in much more money than Treasury was then predicting. Now Treasury confirm that the charge will bring in 'at least' £20m more.
— Charles Parkinson (@dep_parkinson) January 22, 2024

Pictured: Deputy Charles Parkinson, who ran for P&R President, has consistently argued that Treasury was underestimating the Pillar Two tax take and proposed using the windfall to fund Les Ozouets.

The P&R pair did accept there are economic risks to Guernsey from the reforms and “uncertainty” over what the final proposals look like, which could lead to some businesses choosing to relocate.

“How much additional revenue is dependent not only on how the legislation is applied in Guernsey, but also how it is applied in countries where entities in Guernsey might also face tax, or in jurisdictions where business might relocate if they feel there is an advantage in doing so.

“There is much technical work still to do to finalise how this global initiative will work in practice, as such the proposals for implementation of the minimum tax in Guernsey have yet to be finalised. Once there is clearer visibility of the global position later in 2024, the proposals can be finalised and presented to the States Assembly for debate in the normal way.”

But Deputy Trott said the Bailiwick had no choice but to implement and execute the new tax system effectively.

“These are international measures and if we wish to remain compliant and cooperative, we need to - for once it's to our benefit.

“It’s a great bit of news and it's a further indictment I think about the strength of our economy, that there is no expectation that there will be any behaviours that could impact those predictions negatively.”