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TAXING TIMES 3: NO ONE-SIZE-FITS-ALL FOR PILLAR TWO
BVI Finance hosted its “Taxing Times 3” webinar to provide an update and discussion on the status of the global implementation of the OECD’s Global Minimum Tax (Pillar Two, or GloBE Rules).
The roundtable, the third in the series, brought together a distinguished panel of experts to discuss the path towards implementation for the OECD’s Global Minimum Tax (GMT), potential roadblocks, and the impacts for countries across the globe, both in terms of implementation and nonimplementation.
Moderated by Oliver Cooper, Policy Lead at Charles Russell Speechlys LLP and Counsel to the IFC Forum, the expert panel consisted of Pascal Saint-Amans, Former Tax Policy Director at OECD; Mindy Herzfeld, Counsel at Potomac Law and Tax Professor at the University of Florida; Geoff Cook, Former CEO of Jersey Finance and Chair of the STEP Global Public Policy Committee; and Kayla Laidlaw, Tax Advisory Director at Deloitte BVI.
The panel discussed the status of the global implementation of the OECD’s Global Minimum Tax (Pillar 2) and how the changes will impact International Finance Centres such as the British Virgin Islands.
THE CURRENT STATUS OF IMPLEMENTATION
• As of January 2024, over 140 countries have agreed to implement the OECD global tax deal, with around 50 countries having taken practical steps to implement part of the plan.
• This is a significant milestone. Pillar Two was conceived in a way that once a ‘critical mass’ of participating countries has been achieved, the remaining jurisdictions will have an incentive to implement the GMT as well. It is now believed that this critical mass has been achieved.
• This is because Pillar 2 includes the Income Inclusive Rule; a principle whereby a “top-up tax” will be applied on profits in any jurisdiction whenever the effective tax rate is below the minimum 15% rate.
• It is therefore within the best interests of a jurisdiction to implement the GMT and benefit from the additional tax income.
• The EU adopted its Pillar Two directive at the end of last year and Member States were obliged to implement the rules by 31 December 2023. Variations on how and when this will occur but it is a significant step.
• Major economies such as Japan, Korea, UK and Canada have all signed up to the tax deal, with notable absences including China and the USA.
• Whilst China is not expected to participate, there is hope the United States will join. Reasons for its absence are multifaceted and include a lack of consensus in Congress as well as the push ahead of their own minimum tax policies.
• An increasing number of low-tax jurisdictions have shifted their stance to support Pillar 2 after periods of public consultation, in order not to lose tax revenues to foreign countries.
CHALLENGES IN TERMS OF COST AND COMPLIANCE
• Despite the growing global support, challenges around compliance and costs remain complex and affect the ability and motivation of nations to sign onto the deal.
• It is estimated by IMF that more than €200 billion in additional revenue would be brought in annually.
• Effective implementation would therefore also require each jurisdiction to come up with a wide strategy regarding longterm revenue generation and the overall strategic direction of each jurisdiction.
• For developing nations, the cost of building the adequate taxation infrastructure would be high. And for those who are not home to a significant number of companies that qualify for the 15% tax, it may be their decision to not implement their own framework and participate through the Income Inclusive Rule.
• For multinational companies impacted there will be two main implications. Firstly, a likely increase in tax expenses globally and resulting decrease of net profit at a group level. And secondly, there will be a compliance and administrative burden, to not only complete the required calculations but to track the groups obligations and top up taxes in each jurisdiction.
IFC s: AN APPROACH TO GLOBAL MINIMUM TAX
• The very nature of International Finance Centres is supporting cross-border business in accordance with international standards.
• Co-operation and participation from IFCs will be a given, but this will vary by circumstance, predominance of business sector, by geographic standards and international relationships.
• A handful of IFCs have already committed to Pillar 2, with the justification that it will ensure they will not lose tax revenues to foreign countries and to create legal certainty and a stable framework around the new taxation regime.
• British Crown Dependencies differ from British Overseas Territories in that they already have the broadly traditional taxation framework in place. For British Crown Dependencies, adoption of Pillar 2 will be relatively straightforward.
• For OTs, building the taxation infrastructure will be costly and may participate through the Income Inclusion rule.
CONCLUSION
The developments surrounding Pillar 2 are ongoing and the components are complex. For IFCs such as the BVI, participation will not look uniform and will vary depending on each jurisdiction’s specific circumstances.
IFCs play a vital role in the global economy, offering world-leading financial and professional services and products in a tax neutral environment. For the centres to continue this critical work, it will be important to be pro-active and co-operative with Pillar 2 where necessary in order to remain compliant with international standards and to eradicate any concerns around profit-shifting that would undermine the OECD agreement.
MODERATOR
Oliver Cooper Policy Lead, Charles Russell Speechlys LLP Counsel, IFC Forum
PANELISTS
Geoff Cook
Geoff Cook Advisory Ltd
Chair, Mourant Consulting Ltd
Kayla Laidlaw
Tax Advisory Director, Deloitte BVI
Mindy Herzfeld Counsel, Potomac Law Group
Tax Professor, University of Florida
