Pillar 2 Dashboard: Guernsey

On November 26, 2024, Guernsey issued the Income Tax (Approved International Agreements) (Implementation) (OECD Pillar Two GloBE Model Rules) Regulations, 2024 to transpose the OECD Model Rules into domestic law

OVERVIEW

On November 26, 2024, the Guernsey issued the Income Tax (Approved International Agreements) (Implementation) (OECD Pillar Two GloBE Model Rules) Regulations, 2024 (‘the Regulations’) to transpose the OECD Model Rules (and accompanying guidance) into domestic Regulations. The Regulations are issued under Section 75CC(1C) of the Income Tax (Guernsey) Law, 1975 and are very similar to the legislation introduced in the Isle of Man.

Section 1 of the Regulations states that its purpose is to give legal effect in Guernsey to the GloBE Rules to implement:

-an income inclusion rule (IIR) (referred to in the Regulations as a Multinational Top-up Tax or ‘MTT’) that is intended to be a Qualified IIR;

-a minimum tax that is intended to be a Qualified Domestic Minimum Top-up Tax (QDMTT) (referred to in the Regulations as a Domestic Top-up Tax or DTT).

The Regulations do not give legal effect in Guernsey to the under-taxed profits rule (‘UTPR’).

The provisions of the Regulations apply to fiscal years that commence on or after January 1, 2025.

GLOBE APPLICATION

General

The approach taken in the Regulations is to incorporate by reference the OECD Model Rules and accompanying Commentary/Guidance to effectively transpose the OECD Rules into domestic law (subject to specified amendments).
It achieves this in a number of ways:

Section 1(3) of the Regulations states the GloBE Model Rules shall extend to Guernsey and have the same force and effect as regulations made under the Law
Section 58 of the Regulations states that any reference in square brackets in the OECD GloBE Rules that invites the insertion of the name of an implementing jurisdiction must be construed as if those square-bracketed words were replaced with “Guernsey”.

Section 2 of the Regulations states that the provisions of the Regulations on the IIR and QDMTT must be read and construed in accordance with the GloBE Commentary, the Administrative Guidance, OECD Safe Harbour Rules and the OECD Examples.

This is reiterated in Section 69(4) which states that the provisions of the GloBE Rules must be applied consistently with the most recent:

• GloBE Commentary;

• GloBE Administrative Guidance;

• GloBE Safe Harbours; and

• GloBE Examples

that have been applied in Guernsey before the start of the Fiscal Year that is being considered. The OECD GloBE rules apply to the extent that any provision of those Rules is not expressly stated in the Regulations to be inapplicable.

The GloBE Administrative Guidance is defined in Section 2(2) to include:

• The February 2023 OECD Administrative Guidance;

• The July 2023 OECD Administrative Guidance;

• The December 2023 OECD Administrative Guidance;

• The June 2024 OECD Administrative Guidance;

• Any other document promulgated by the OECD and prescribed by regulations in Guernsey

Part III states that each Domestic Constituent Entity/JV is liable to pay MTT under the IIR determined in accordance with the GloBE Rules for each Fiscal Year of the Qualifying MNE Group that includes the Domestic Constituent Entity.

The only aspects of the OECD Model Rules that are not applicable for the IIR/MTT calculation are the provisions relating to the UTPR (including the exclusion for MNE Groups in the initial phase of their international activity).

There is an exception to the general transposition of the OECD Model Rules and other guidance for any amendments to the definition of “minimum rate” in Article 10.1.1 of the GloBE Model Rules.

Administrative Guidance

The OECD Commentary, including OECD Administrative Guidance is taken into account under Section 2 of the Regulations when applying the Pillar Two GloBE Rules.

Safe Harbour and Penalty Relief Guidance

Section 2(4) and Section 69(4) of the Regulations states that in applying the IIR(MTT) and QDMTT (DTT) the provisions of the GloBE Rules must be applied consistently with the most recent:

• GloBE Commentary;

• Administrative Guidance; 

• Safe Harbours; and

• Examples

that have been applied in Guernsey before the start of the Fiscal Year that is being considered.

Safe Harbours are defined as an exception provided in Article 8.2.1 of the GloBE Rules whose design and eligibility conditions have been approved by the Inclusive Framework and set out in

• The OECD Safe Harbours and Penalty Relief Rules

• Administrative Guidance on the GloBE Rules; and

• Any additional document published by the OECD and prescribed by regulations in Guernsey.

Therefore all the OECD Safe Harbours should be applicable for the IIR/MTT, where relevant.

ELECTIONS

Elections in the OECD Model Rules

As the Regulations transpose the OECD Model Rules into domestic law, all of the elections included in the OECD Model Rules are provided domestically, including:

• Excluded Entity Election

• Stock-Based Compensation Election

• Election to use the Realization Method

• Election to Spread Capital Gains

• Consolidation Election

• Unclaimed Accrual Election

• GloBE Loss Election

• Prior Year Adjustment Election

• De minimis Election

• Substance-Based Income Exclusion Election

• Taxable distribution Election

• Tax transparency Election

• Distribution Tax Regime Election

• Safe Harbour Elections

Elections in the Administrative Guidance

As the Regulations transpose the OECD Administrative Guidance into domestic law, all of the elections included in the OECD Administrative Guidance are provided domestically, including:

• Foreign Exchange Hedge Election

• Portfolio Shareholding Election

• Excess Negative Tax Carry-Forward Election

• Equity Investment Inclusion Election/Qualified Ownership Interest Election

• Debt Release Election

DEVIATIONS FROM THE OECD MODEL RULES/EU GLOBAL MINIMUM TAX DIRECTIVE

As expected, the Regulations closely follows the OECD Model Rules.

The main deviations relate to the design of the QDMTT and the exclusion of the UTPR.

Section 50 of the Regulations also provides specific rules for Protected Cell Companies. It provides that a Protected Cell Company (“PCC”) is not to be regarded as an entity and each cell of the PCC and its core are to be treated as separate entities distinct from the others.

As such, the fact that an entity is a cell of a PCC is irrelevant to determining whether the entity is a member of a Group and the accounts of the PCC are not to be regarded as Consolidated Financial Statements for GloBE purposes.

Section 61 of the Regulations states that 67 of the Income Tax (Guernsey) Law, 1975, (general provision against legal avoidance), applies for the purposes of the GloBE Regulations and the GloBE Model Rules as if references to “tax under this Law” or “tax” included references to DTT and MTT.

DOMESTIC MINIMUM TAX

General

Part II of the Regulations applies a domestic minimum tax (DTT) from January 1, 2025, that is intended to be a QDMTT.

QDMTT Design Features

Section 4 of the Regulations provides that the amount of top-up tax under the QDMTT is based on the calculation of excess profits for GloBE purposes. However, there are a number of adjustments which apply either as they are not relevant or the Regulations expressly provides rules that apply these provisions.

Section 6 of the Regulations states that the following provisions of the GloBE Rules do not apply for QDMTT purposes:

• Chapter 2 (Charging Provisions);

• Articles 5.2.4 and 5.2.5 (allocation of Top-up Tax), subject to specific rules in the Regulations for the allocation of the QDMTT between entities;

• Article 5.4.2 (allocation of Additional Current Top-up Tax in accordance with Article 5.4.1);

• Article 5.4.3 (allocation of Additional Current Top-up Tax in accordance with Article 4.1.5);

• Article 5.4.4 (determination as a Low-Taxed Constituent Entity);

• Article 6.2.1(h) (application of IIR in respect of acquisition of a target Entity);

• Article 6.4.1(b) and (c) (application of IIR and UTPR in connection with Joint Ventures and JV Subsidiaries);

• Article 6.5.1(e) and (f) (application of IIR and UTPR in connection with Multi-Parented MNE Groups);

• Article 7.3 (Eligible Distribution Tax Systems);

• Article 8.1 (GloBE Information Return filing obligation);

• Article 8.3 (Administrative Guidance); and

• Article 9.4 ((Transitional relief for filing obligations) which amends Article 8.1 of the GloBE Rules for filing obligation in Transitional Year).

Taxes Pushed Down

Tax paid or incurred by a Constituent Entity-owner under a CFC Tax Regime that is pushed down to a domestic Constituent Entity in the GloBE Rules must be excluded, as provided in the OECD Administrative Guidance. This is included in Sections 8 of the Regulations.

This preserves Guernsey’s primary right to tax income accruing to a Guernsey member entity which is also a CFC. If there were no statutory derogation from the general GloBE rules for the calculation of the domestic minimum tax, and the CFC tax paid by the controlling company abroad were included in the included taxes of the Guernsey CFC, the effective tax rate would be increased. Therefore, excluding the CFC tax from the Guernsey CFCs covered taxes allows Guernsey to tax low-taxed income at a higher rate than would be the case under an IIR.

Section 8 also prevents the pushdown of tax to hybrids, PEs and for taxes on distributions (aside from Guernsey withholding tax on distributions).

International Activity Exemption

The UTPR exclusion for MNEs in their initial phase of international activity does not need to be included in a QDMTT, however, it can be included. The Second Set of OECD Administrative Guidance provides jurisdictions with three options regarding the temporary UTPR exclusion in their QDMTT legislation.

Option one allows the jurisdiction not to adopt it.

Option two allows the jurisdiction to adopt it but limits it to cases where no Parent Entity is required to apply a Qualified Income Inclusion Rule with respect to Constituent Entities of an MNE Group located in the QDMTT jurisdiction.

Option three allows the jurisdiction to adopt it without any limitations. (Note, if a jurisdiction opts for Option three, for the purposes of the QDMTT Safe Harbour the Switch-Over Rule would apply).

Guernsey applies Option two in Section 7(1)(c) of the Regulations.

Accounting Standard

Whilst the July 2024 OECD Administrative Guidance does permit local accounting standards to be used for QDMTT purposes, Guernsey simply adopts the default GloBE rules in Section 5 of the Regulations.

As such the accounting standard of the UPE is used as default however. the accounting standard used in the preparation of the financial statements of the constituent entity can be used for QDMTT purposes if:

1. it is not reasonably practicable to determine the net profit or loss for the constituent entity on the basis of the UPE accounting standard;

2. it is an acceptable or authorised accounting standard;

3. the information contained in the financial statements is reliable; and

4. permanent differences of more than EUR 1 million are conformed with the UPEs accounting standard.

Stateless Entities

Under the OECD Administrative Guidance, a domestic minimum tax does not need to apply to Stateless Constituent Entities or permanent establishments to be a QDMTT. However, jurisdictions can impose a QDMTT on these entities when they are created under the domestic Regulations of the jurisdiction (or where a permanent establishment has a place of business in the QDMTT jurisdiction).

Section 12 of the Regulations provides that the QDMTT does not apply to a Flow-through Entity that is treated as a stateless Entity in accordance with Article 10.3.2 of the GloBE Rules or a securitisation entity.

Transitional Year

Sections 14 and 15 of the Regulations provide for the transitional year refreshing rule.
A new transition year, arises in an accounting period in which the entities of an MNE/domestic fall within the scope of a qualified IIR or UTPR if this accounting period begins after the beginning of the transition year for QDMTT purposes.

In the new transition year the following attributes of the relevant Constituent Entities are refreshed:

-Any Excess Negative Tax Expense Carry-forward under Article 4.1.5 or Article 5.2.1 is eliminated at the beginning of the new Transition Year.

-The DTL recapture rule in Article 4.4.4 does not apply to any deferred tax liability that was taken into account in computing the ETR under the QDMTT and that was not recaptured prior to the new Transition Year.

-Any GloBE Loss Deferred Tax Asset that arose in a year preceding the new Transition Year must be eliminated. The Filing Constituent Entity may make a new GloBE Loss election in the new Transition Year.

-The deferred tax items previously determined are eliminated and Article 9.1.1 is applied at the beginning of the new Transition Year.

-Article 9.1.2 applies to transactions occurring after November 30, 2021 and before the beginning of the new Transition Year. However, if QDMTT was payable due to the application of Article 4.1.5 in respect of a deferred tax asset attributable to a tax loss, the deferred tax asset is not treated as arising from items excluded from the computation of GloBE Income or Loss under Chapter 3 of the OECD Model Rules.

Other

Section 13 of the Regulations provides that the GloBE Commentary on the QDMTT Safe Harbour does not apply for QDMTT purposes.

Section 11 of the Regulations applies specific rules for the allocation of the QDMTT liability between Entities. It provides that the allocation is generally based on Articles 5.2.4 and 5.2.5 of the GloBE Rules, however, in certain cases a Domestic Filing Entity may elect that the allocation of the DTT liability for the Fiscal Year be made in accordance with a special procedure.

Registration

Section 20 of the Regulations requires every Domestic Constituent Entity of a Qualifying MNE Group, Domestic Joint Venture and Domestic Joint Venture Subsidiary to register with the Tax Authority.

A Qualifying MNE Group is required to ensure that one Domestic Constituent Entity is appointed as the Domestic Filing Entity (which must be notified to the Tax Authority). The Domestic Filing Entity is responsible for registering all other Domestic Constituent Entities, Domestic Joint Ventures and Domestic Joint Venture Subsidiaries of the Group.

The deadline for registration is the later of:

• 12 months from the start of the first Fiscal Year commencing on or after 1 January 2025 of the MNE Group of which any of the following is a member:

(i) a Domestic Constituent Entity;

(ii) a Domestic Joint Venture;

(iii) a Domestic Joint Venture Subsidiary;

• 6 months from the date that such an Entity becomes a member of the MNE Group.

Filing

The relevant aspects of the submission of a GloBE Information Return (GIR) are included, as provided in the OECD Model Rules.

The approach is that every Domestic Filing Entity located in Guernsey will have an obligation to file a GIR in Guernsey on behalf of the Domestic Constituent Entities, Domestic Joint Ventures and Domestic Joint Venture Subsidiaries. However, this obligation can be discharged if the GIR is filed in another jurisdiction with which Guernsey has a Qualifying Competent Authority Agreement in force for that period.

Where the GIR is being filed by another entity, the Domestic Filing Entity, must file a notification with the Tax Authority.

The notification must contain:

• Details of the entity that is filing the GIR, and
• The jurisdiction in which such an entity is located.

The GIR must be filed no later than 15 months after the end of the fiscal year (with an 18-month deadline for the Transition Year).

Where an MNE group does not meet the 750 million euro revenue threshold in Article 1.1 of the OECD Model Rules, Section 26 of the Regulations provides that the Domestic Filing Entity must submit a below-threshold notification to the Tax authority in respect of that Fiscal Year.

Sections 24 and 25 of the Regulations requires the submission of IIR/MTT and QDMTT/DTT tax returns by the Domestic Filing Entity of an MNE Group on behalf of all Domestic Constituent Entities, Domestic Joint Ventures and Domestic Joint Venture Subsidiaries.

The filing deadline for the GIR, tax returns and other notifications is:

(a) 15 months after the end of the Fiscal Year; or

(b) 18 months after the end of the Fiscal Year to which it relates, but
only if :

• that Fiscal Year is the first one in which the MNE Group or Domestic Joint Venture Group is liable to the DTT or MTT; and

• the MNE Group or Domestic Joint Venture Group has not been required to file a GloBE Information Return in another jurisdiction in a previous Fiscal Year

Payment

Section 52 of the Regulations provides that the DTT and MTT for each Entity are due for payment by the deadline for submitting returns.

Penalties

The Regulations generally apply the penalty provisions in the Income Tax (Guernsey) Law, 1975 for GloBE purposes, subject to some specific provisions (eg Section 47 provides for a fine of up to £20,000 for failure to register).

Guernsey has opened its Pillar 2 Registration Portal, to appoint the Domestic Filing Entity and register Domestic Constituent Entities.

In October 2025, Guernsey issued the Guernsey Pillar 2 Brief: Issue 1 which includes further detail on the registration process (the actual registration system is planned to be operational during the fourth quarter of 2025).

The online system for the submission of the DTT and MTT returns (and related notifications) is being developed and it is anticipated to be available in 2026.

Note that a temporary DTT Cessation Form has been issued. The DTT Cessation Form must be submitted via post or email.