Guernsey Pillar Two Update

Guernsey has approved legislation to implement the OECD’s Pillar Two rules, which is effective from 1 January 2025. No local guidance notes have been released as yet. As you will be aware, these rules are an OECD initiative to ensure that large multinational enterprises with a consolidated annual turnover exceeding EUR 750 million (Qualifying MNEs) pay a minimum tax of 15% at a jurisdictional level, with a top-up tax on any low-tax profits. Guernsey has implemented the Qualified Domestic Top-up Tax (DTT) and the Multinational Top-up Tax (MTT) for the Qualified Income Inclusion Rule, following the GloBE Model Rules with some modifications.

The standard tax rate in Guernsey will remain at 0% (with 10% and 20% applying on certain activities as they currently stand). The 15% minimum effective tax rate applicable under the Pillar Two Regulation will only apply to MNEs meeting the consolidated turnover threshold. Therefore, any entities in Guernsey that are part of an MNE but do not meet the threshold will not be impacted by the Pillar Two regulation.

Key highlights of the Guernsey Pillar Two regulation include:

• Implementation date: Effective from fiscal periods starting on or after 1 January 2025.
• Exempt Entities: Investment entities and insurance investment entities are exempt in line with the GloBE Model Rules.
• Consolidated Financial Statements: Not required to be prepared under local GAAP but must follow an Acceptable Financial Accounting Standard in line with the GloBE Model Rules.
• Domestic Top-up Tax (DTT): Guernsey tax resident entities that are constituent entities of Qualifying MNEs, Domestic Joint Ventures, and their subsidiaries will be liable to DTT.
• Multinational Top-up Tax (MTT): Ultimate parent entities of Qualifying MNEs will be liable to MTT.
• Registration: Qualifying MNEs are required to appoint a domestic entity of the group as the domestic filing entity with responsibility to submit the necessary returns and notifications to the Guernsey Revenue Service. The domestic filing entity is responsible for registering all Guernsey entities in the group. The registration is required to be submitted within the later of 12 months of the first fiscal period beginning on or after 1 January 2025 or six months from the date the entity becomes a member of a Qualifying MNE. Failure to register could result in summary convictions as well as financial penalties up to £20,000.
• Filing requirements: Returns must be filed within 15 months after the fiscal year-end, or 18 months for the first year. If a GloBE Information Return is filed in another jurisdiction with a Qualifying Competent Authority Agreement, a notification must be submitted to the Guernsey Revenue Service. Where an MNE previously in scope of the rules is below the threshold in a particular year, the domestic filing entity would be required to submit a below-threshold notification to the Guernsey Revenue Service.
• Penalties and offences: Similar penalties for the current tax returns apply to the Pillar Two filings. However, instead of penalties of up to £50 per day for late submission, the Pillar Two filings will have a penalty of up to £1,000 by the 30th day of default.
• Protected Cell Companies (PCCs): Although PCCs are treated as a single entity for Guernsey tax purposes, for the purposes of the Pillar Two regulation, PCCs will not be considered as a single entity, instead the individual cells and the core would be treated as separate entities.

Impact on your business

As these rules come into force from 1 January 2025, it is important for larger structures, in particular if these structures report under the country-by-country reporting regime which has a similar reporting threshold, to start analysing whether they are in scope, from which fiscal year these regulations will apply and what the impact will be, both fiscal and administrative, for their local operations.

Where a group or local entity falls within the scope of the Regulations it will be important to consider the following:

• Increased compliance requirements: Ensure timely registration and submission of returns to avoid penalties. There is the complexity in calculating the DTT and MTT where applicable.
• Financial implications: Assess potential DTT and MTT liabilities and their impact on your financial statements.
• Financial Statement Disclosures: Calculations of potential DTT and MTT liabilities will need to be disclosed in financial statements.
• Record-keeping: Maintain accurate records to comply with the new regulations and avoid penalties.

How PwC can assist

• Initial assessment: Determine if your group falls within the scope of the Pillar Two regulations.
• In-depth analysis: Understand the regulations and their potential impact on your group.
• Calculation services: Assist with DTT and MTT calculations where applicable.
• Registration and filing support: Facilitate registrations, notifications and the preparation and submission of returns to the Guernsey Revenue Service.