A PROPOSED tax hike affecting more than 1,000 multinational companies based in Jersey could raise an extra £52 million a year, according to the government.
The new Organisation for Economic Co-operation and Development framework – known as Pillar Two – would apply to Jersey-headquartered firms that earn more than £750 million in global annual profits, requiring them to pay 15% tax from next year.
Jersey’s government yesterday lodged a proposition to enact the legislation at the same time as Guernsey and the Isle of Man. Pillar Two is part of a global crackdown on companies moving their profits around several jurisdictions in order to minimise their taxes. The rules have been in force in the UK and the European Union since January this year.
But critics in Jersey have called the move a “gamble” and said that it risks firms leaving Jersey.
Jersey’s government has estimated that the changes could raise £52 million per year, and speculated that the windfall might be used to pay for the new hospital or to replenish the Island’s cash reserves, but it has warned that revenue “is difficult to predict”.
It has also admitted that the cost of administering the tax would be “substantial”, with Deputy Ian Gorst, the government minister with responsibility for external relations and financial services, telling the JEP that between four and eight roles would need to be created in order to do so.
The announcement comes just days after the government announced a nine-month freeze on hiring civil servants above a Grade II level – earning around £66,000 and upwards – but Deputy Gorst said he was confident that an exception could be made.
“This is a brand-new tax and we need individuals to administer it,” he said. “Departments make the case [for hiring] on an individual basis of the value of the recruitment required. It would be rather silly for us not to employ the people we need to implement this new tax and thereby not have the £52 million.”
He said that while high-level recruitment was always a challenge, “we’ve been successful in recruiting people from the international tax community to come and work in Jersey”.
The rules would impact 1,400 companies based in the Island, less than 3% of the total. Under the new system, affected companies would pay 15% instead of 10% but some others would see their taxes rise from nothing under the zero-ten corporate tax regime to the new 15% figure.
Critics warn that there is a chance companies faced with 15% taxes might decide to move their headquarters away from Jersey.
Former Senator Ben Shenton, of Westminster Asset Management, said: “It is quite a gamble to start changing the tax law, because in some respects it removes any rationale for these companies to be in Jersey.
“Coming over here and expecting zero per cent tax and then having to pay 15% is like going into a steak house and finding out that they’ve gone vegan.
“The knock-on effect of those companies leaving the Island could be immense because of the industry – accountants, banks, and lawyers – that relies on them.”
States Members are due to vote on the changes in October.
