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Much has been said about the G7's recent decision to pursue a base global corporate tax rate of at least 15% (the Global Tax Rate). Some are calling it the twilight of the offshore jurisdictions. Should Jersey be worried?

The initiative appears to be aimed at multinationals with household names who use discrepancies in the international finance system to minimise their tax contributions.

The implementation of a Global Tax Rate would, on its face, remove Jersey's ability to provide an inviting business environment in which to do business. However, the impact of the proposals may be less severe than the headlines suggest. This article explores why a Global Tax Rate may not be too taxing after all.

A Global Tax Rate may help Jersey cast off its reputation as a 'Tax Haven'

Jersey's 'Zero-Ten' company taxation system, whereby corporation tax is set at 0% for most Jersey companies, was introduced over a decade ago. Following the stern comments received by Jersey from the European Parliament's TAXE committee in 2016 concerning the 0% rate, Zero-Ten now arguably needs to be reformed anyway. No matter how compelling Jersey's arguments have been in rebutting the (unfair) perception that it is a tax haven, the 0% rate remains an albatross around the Island's neck from a PR perspective.

A Global Tax Rate would allow a rebranding of Jersey's role in the financial services world to take place.

The Global Tax Rate may help rebalance Jersey's tax revenue intake

The Zero-Ten system may not have helped the local population's personal finances too much either; it has played a significant role in the shift in the Island's tax revenues from being mainly paid by corporations, to being mainly paid by individuals.

Before Zero-Ten's introduction, foreign owned entities paid £600 per year to be registered in Jersey. Following the introduction of Zero-Ten, that fee dropped to £0. In 2002 corporate tax revenues accounted for 57% of Jersey's total tax pot, and revenue from individuals accounted for just 43%. The latest figures released show that tax paid by corporations now accounts for just 19.5% of receipts, and local residents pay the remainder.

Zero-Ten's introduction may have forced the Government to introduce GST and attract more white-collar immigration workers and '2.1(e)s', to make up the corporate tax shortfall. The resulting population growth may have led to the increasing cost of living in the Island and pushed up house prices.

A Global Tax Rate should increase Jersey's corporate tax intake, which may, in turn, reduce the pressure on local residents to meet Jersey's long term budget deficits.

The Global Tax Rate won't be introduced for a while, allowing Jersey the time to adapt and prepare

The Global Tax Rate proposals are still in their embryonic stage. Once they have been finalised by the G7, which will be no easy negotiation in itself, they will need to be approved by the G20 led by a hostile China.

Surprisingly, the Global Tax Rate may meet the most resistance from individual States and lobbyists within the USA itself. Delaware and other low tax jurisdictions such as Florida and Nevada are arguably the worst offenders globally regarding tax transparency; they will likely fight President Biden's proposals tooth and nail.

All countries agree that the provisions will only be adopted globally when they can be applied equally everywhere. Without a level playing field, no one country will be expected to implement a new tax system which would put them at a competitive disadvantage.

In short, Jersey has time on its side to adapt its tax code and its 'Jersey PLC' marketing to take advantage of the opportunities a Global Tax Rate might bring. Jersey's relative agility compared to its larger rivals may allow it to reinvent itself to stay relevant in a world with a base Global Tax Rate.

A base Global Tax Rate may not materially impact Jersey's financial services sectors

The primary driver behind the introduction of the base Global Tax Rate is to make hugely profitable multinationals such as Apple, Facebook, Amazon and Google pay their fair share into government coffers. These companies should be hit hardest by the G7's proposals which will focus on them intensely.

However, it is likely that Jersey's blue-chip industries – the private funds and private wealth management sectors - will either be exempted from these corporate tax proposals or will not be in scope in the first place. The current G7 proposals are relatively limited, and investment funds, which act as a valuable gateway to the UK and EU for capital, will probably not be targeted.

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