On 26 November 2024, Guernsey enacted legislation to implement the OECD’s Pillar Two framework, namely, the Income Tax (Approved International Agreements) (Implementation) (OECD Pillar Two GloBE Model Rules) Regulations, 2024 (“the Pillar Two Regulations”). The new rules will apply for fiscal years beginning on or after 1 January 2025.
The existing 0/10 corporate income tax regime (including the tax rate of 20% applicable on certain profits) will not be impacted and will continue to run in parallel along with the Pillar Two Regulations; hence the standard tax rate under the existing corporate income tax regime will remain at 0%. Therefore, the Pillar Two Regulations will bring about additional tax payment and filing obligations only for Guernsey entities of in-scope multinational enterprise groups (“MNE Groups”).
Under the Pillar Two Regulations, two types of taxes have been introduced in relation to Guernsey constituent entities, domestic joint ventures and domestic joint venture subsidiaries of MNE Groups with consolidated global annual turnover in excess of €750million:
1. Domestic Top-up Tax (“DTT”); and
2. Multinational Top-up Tax (“MTT”) payable under the Income Inclusion Rule (“IIR”) of the Pillar Two GloBE Model Rules.
In summary, the DTT will apply to certain Guernsey companies and branches of in-scope MNE Groups on the profits generated in Guernsey, whilst the MTT will apply to such in-scope MNE Group entities which are Ultimate Parent Entities and/or Intermediate Parent Entities based in Guernsey on their non-Guernsey profits; in both cases requiring such entities to pay an effective tax rate of 15% in Guernsey charged with reference to their GloBE Income.
We have detailed below some of the key features of the Pillar Two Regulations:
- The domestic rules are broadly based on the OECD’s GloBE Model Rules, GloBE Administrative Guidance, GloBE Commentary, GloBE Examples and GloBE Safe Harbours Rules, subject to certain specific adjustments;
- The DTT liability for the MNE Group is calculated on a jurisdictional basis;
- The core of Protected Cell Companies (“PCCs”) and their individual cells will be treated as separate entities for the purposes of the Pillar Two Regulations;
- The MNE Group must appoint a domestic entity as the entity responsible for inter alia registration, filing notifications and returns and making payments on behalf of the group (namely a Domestic Filing Entity);
- The relevant entities of the MNE Group are required to be registered with the Guernsey Revenue Service within 12 months from the start of the first fiscal year beginning on or after 1 January 2025 or 6 months from the date the Entity becomes a member of the MNE Group, whichever is later;
- Returns are required to be filed and relevant tax payment are to be made within 15 months from the end of the fiscal year, or within 18 months from the end of the first fiscal year;
- DTT and MTT returns may be amended and any overpayment claims can be made by the Domestic Filing Entity within 6 years from the end of the relevant fiscal year;
- Inquiries into the DTT and MTT returns and discovery assessments may be initiated by the Guernsey Revenue Service within 6 years from the filing deadline, the date of submission of the return or the date of amendment to the return, whichever is later;
- Appeals can be made to the Guernsey Revenue Service Tribunal within a period of 30 days from the date of the decision notice;
- Penalties for late filing of relevant Pillar Two returns are similar to those applicable for income tax returns, however the £50 limit for daily penalties will increase to £1,000 per day after the 30th day of default. Penalties also apply for other offences such as failure to register on time, failure to keep proper records etc.;
- Each relevant domestic entity is jointly and severally liable for the tax liability;
- Guidance may be issued by the Director of the Revenue Service in relation to the implementation of the Pillar Two Regulations.
Jersey and the Isle of Man have also enacted legislation implementing changes arising from the domestic introduction of the Pillar Two framework.
How KPMG can help
If your group is potentially impacted by the proposed regulations and you would like to learn more about how KPMG can help your organisation prepare for the implementation of the regulations, please get in touch with your local KPMG contacts. KPMG can help with:
1. Assessing whether your group is in scope of the Pillar Two Regulations
2. Detailed impact assessments to understand the impact of the Pillar Two Regulations on your group and the appropriate actions; and
3. Ongoing compliance covering assistance with registration, calculation of DTT and MTT liabilities and filing of notifications and returns to the Guernsey Revenue Service.
Paul Eastwood
Head of Tax (KPMG CD)
KPMG Crown Dependencies
Robert Rotherham
Partner, Tax
KPMG Crown Dependencies
Matt Thomas
Director, Tax
KPMG Crown Dependencies
Afrah Iqbal
Senior Manager, Tax
KPMG Crown Dependencies