TENS of millions of pounds from a corporation tax “windfall” could be used to help build the new hospital or replenish reserves, Assistant Treasury Minister Ian Gorst has said.
Under a new worldwide initiative by the OECD, multinationals whose global annual turnover exceeds 750 million euros will pay 15% tax on profits.
The regime – called the Pillar Two framework – is designed to stop global companies from shifting their profits around the world to avoid paying tax.
In Jersey 1,400 companies, 3% of the total, will be impacted. Under the new system, affected finance companies will pay 15% instead of 10% but some others will move from paying nothing under the zero/ten corporate tax regime to the new 15% figure.
It was the shift to zero/ten that increased the burden on personal rather than corporate taxpayers.
Government accounts for 2023 show personal income tax generated £623.5 million compared with £142.2 million of corporate tax.
Deputy Gorst declined to put a number on the additional tax that compliance with Pillar Two will generate from 2026, but it is likely to dwarf the £30m forecast by Guernsey.
“It has the potential to be substantial,” he said.
“We might expect, looking at the structure of our finance industry, that it would be greater than [Guernsey] but you would also expect me to want to be conservative and not necessarily count our chickens until the eggs had hatched.
“That’s why we are doing [an] important piece of work to be able to put a number – what we are referring to as a base case number – that we can have certainty on.”
The government is currently undertaking an economic analysis of the implications of what Deputy Gorst described as “a windfall arising out of [the OECD’s] global regime”.
The “base case number” will be included in the new government plan likely to be published next month.
Deputy Gorst signalled what is likely to be a cautious approach to the new revenues.
He said: “It doesn’t take much political judgment to think that the first thing we should think about is making sure we can fund the hospital with that money, whether that’s just servicing the debt or going towards the capital and reducing the amount we need to borrow.
“You then might have some other things you might think about maintaining the competitiveness of Jersey,” he said, giving as examples support for child care and housing.
Given uncertainty over the duration of the additional tax, Deputy Gorst said it might also be appropriate to look at restoring some of the Island’s reserves.
To implement the new arrangements, the Island is introducing “a brand new multi-lateral corporate income tax”.
“If you are in-scope by the OECD rules you come out of zero/ten and come into this new tax which mirrors what happens in Pillar Two.
“We are all the time thinking about how can we make this change compliant with the international approach, but also maintain competitiveness,” the assistant minister explained.
Former Senator Ben Shenton, of Westminister Asset Management, welcomed any “short-term uplift in the Island’s finances” but said it would not be prudent to rely on these income flows over the longer term.
“Certainly we should not commit to any extra spending based on them…The implementation was to increase tax revenues in the economies where the profits were created. The OECD are therefore unlikely to allow Jersey to be a major beneficiary beyond a short transition period, as this would defeat the whole object of the legislation,” Mr Shenton said.
