Guernsey enacts Pillar Two rules: PwC

Guernsey enacts Pillar Two rules

December 2024

In brief

What happened?

Guernsey recently approved legislation to implement the OECD’s Pillar Two rules, effective from January 1, 2025. Local guidance notes have not been released yet. The Pillar Two rules 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. As a part of the legislation, Guernsey implemented a Qualified Domestic Top-up Tax (DTT) and Multinational Top-up Tax (MTT) for the Qualified Income Inclusion Rule (IIR), which follow the GloBE Model Rules with some modifications.

Why is it relevant?

The corporate income tax rate in Guernsey will remain at 0% (with 10% and 20% applying to certain activities). The 15% minimum effective tax rate applicable under the Pillar Two legislation 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 legislation.

Actions to consider

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

Groups or local entities that fall within the scope of the legislations should consider:

Increased compliance requirements: Ensuring timely registration and submission of returns to avoid penalties. Calculating applicable DTT and MTT is complex.

Financial implications: Assessing potential DTT and MTT liabilities and the financial statement impact.

Financial statement disclosures: Disclosing calculations of potential DTT and MTT liabilities in financial statements.

Record keeping: Maintaining accurate records to comply with the new legislation and avoid penalties.

In detail

Key highlights of Guernsey’s Pillar Two regulation include:

Implementation date: Effective from fiscal periods starting on or after January 1, 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 January 1, 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 offenses: 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 Pillar Two purposes, PCCs will not be considered a single entity; instead, the individual cells and the core would be treated as separate entities.