Pillar 2 Dashboard: Jersey

On October 22, 2024, Jersey enacted the Multinational Corporate Income Tax (Jersey) Law 202 and the Multinational Taxation (Global Anti-Base Erosion – IIR Tax) (Jersey) Law 202 to provide for the IIR and MCIT from January 1, 2025.

On August 14, 2024, the Jersey Assembly accepted for consideration a draft Pillar 2 law ‘Draft Multinational Taxation (Global Anti-Base Erosion – IIR Tax) (Jersey) Law 202’ to implement an IIR as well as a ‘Draft Multinational Corporate Income Tax (Jersey) Law 202’ to implement a new multinational corporate income tax.

GLOBE APPLICATION

General

The Pillar Two top-up tax under the IIR law is essentially transposed directly from the OECD Model Rules. As such GloBE income is determined in accordance with Article 3 of the OECD Model Rules, adjusted covered taxes are based on Article 4 and the actual top-up tax calculation is based on Article 5. The IIR law also specifically includes Article 6 (corporate restructurings and holding structures), Article 7 (tax neutrality and distribution regimes) and the transition rules in Articles 9.1 and 9.2 of the OECD Model Rules.

Article 3 of the IIR law provides that when determining an entity’s liability to tax the tax authority must have regard to the OECD commentary. This is defined as the April 2024 Consolidated Commentary as well as all agreed administrative guidance published by the OECD after April 25, 2024.

Administrative Guidance

As noted above, as the OECD Commentary (as amended by the June 2024 OECD Administrative Guidance and any future Administrative Guidance) is specifically required to be taken into account when computing top-up tax, all of the OECD Administrative Guidance should be applicable in Jersey.

Safe Harbour and Penalty Relief Guidance

Article 1(1)(c) of the IIR law specifies that Article 8.2 (Safe Harbours) of the OECD Model Rules is applicable.

This will include the:

-Transitional CbCR Safe Harbour;

-QDMTT Safe Harbour; and the

-Simplified calculation for Non-Material Constituent Entities Safe Harbour

ELECTIONS

Elections in the OECD Model Rules

All of the elections included in the OECD Model Rules are transposed in the IIR law, 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

Elections in the Administrative Guidance

As the OECD Commentary (as amended by the June 2024 OECD Administrative Guidance and any future OECD Administrative Guidance) is specifically required to be taken into account when computing top-up tax, all of the OECD Administrative Guidance should be applicable in Jersey. As such the various elections in the OECD Administrative Guidance would be applicable. This includes the:

-Debt Release Election

-Equity Investment Inclusion Election

-Foreign Exchange Hedge Election

-Portfolio Shareholding Election

-Excess Negative Tax Carry-Forward Election

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

Although the IIR law directly transposes the OECD Model Rules and Commentary, there are some deviations.

Article 9 provides that the provisions of Article 10.3 of the OECD Model Rules apply for the purposes of determining the location of an entity, however:

(1)     An entity that is a flow-through entity created in Jersey and is not subject to (2) below) is treated as a stateless entity (instead of its location being determined under Article 10.3.2 of the OECD Model Rules).

(2)     A flow-through entity that is a reverse hybrid entity, treated as resident in Jersey for the purposes of Jersey law and meets 1 of the criteria in Article 10(2) (see Section 7.1) is to be treated as being located in Jersey (and is not to be treated as a stateless entity).

Similar rules apply in the MCIT law.

The UTPR is not applied in Jersey.

DOMESTIC MINIMUM TAX

General

The MCIT is a domestic covered tax and not a GloBE top-up tax regime. As such it is not a QDMTT.

QDMTT Design Features

The MCIT is a domestic covered tax and not a GloBE top-up tax regime. In particular, it calculates the top-up tax as 15% of net GloBE income as reduced by the creditable tax amount. The creditable tax amount is based on adjusted covered taxes under the GloBE rules as adjusted for Blended CFC taxes.

It specifically applies a de-minimis test, Article 6 of the Model Rules (corporate restructurings and holding structures), Article 7 of the Model Rules (tax neutrality and distribution regimes) and the transition rules in Article 9.1 of the OECD Model Rules. The MCIT Law provides for two alternative minimum financial thresholds for the de minimis test, one specified in the Model Rules and the other provided for in the law. For the purposes of the latter, the Minister for Treasury and Resources must by Order specify the minimum threshold amount. 

The MCIT does not include covered taxes allocated to PEs, CFC taxes pushed down (and Hybrid/Reverse Hybrid taxes pushed down) and covered taxes referred to in Rule 4.3.2(e) on distributions.

Similarly, Article 7 of the MCIT law specifically excludes investment entities, insurance investment entities and a ‘Securitization Entity’ from the scope of the MCIT.

Articles 20-23 of the MCIT law also includes provisions for the offset of MCIT losses (the amount of the MNE group’s MCIT net GloBE income for a fiscal year is reduced by the amount of the entity’s carried forward loss, and the amount not used in the first fiscal year in which it is available will be carried forward to the next fiscal year (and so on).).

Registration

Under Article 23 of the MCIT law, an MCIT reporting entity in relation to an in-scope MNE group must register each Jersey constituent entity with the Comptroller:

– before the end of the first fiscal year for which the MCIT applies to the in-scope MNE group; or

-if an entity subsequently becomes a Jersey constituent entity in relation to the in-scope MNE group (and, accordingly, liable to be registered), before the end of the period of 6 months beginning with the day on which the entity becomes a Jersey constituent entity.

Under Articles 13/14 of the IIR law, a ‘qualifying entity’ in relation to an in-scope MNE group must give written notice to the Comptroller stating whether the reporting entity is the qualifying entity in relation to the MNE group (and is accordingly required to file the GloBE information return). The notification must be filed no later than 15 months after the end of the fiscal year (with an 18-month deadline for the Transition Year).

An entity is a “qualifying entity” in relation to an MNE group if:

(a) the entity is located in Jersey;

(b) the entity is not an excluded entity;

(c) at any time in the fiscal year, the entity owns (whether directly or indirectly) an ownership interest in a constituent entity that is not located in Jersey; and

(d)  the entity meets one of the criteria below:

The criteria specified in Article 10(2) of the IIR Law are:

(a) the entity is the ultimate parent entity of the MNE group;

(b) the entity is an intermediate parent entity of the MNE group, and –

(i) the ultimate parent entity of the MNE group is not required to apply a qualified IIR for the fiscal year, and

(ii) there is no other intermediate parent entity that owns a controlling interest in the entity and is required to apply a qualified IIR for the fiscal year; or

(c) the entity:

(i) is a partially-owned parent entity, and

(ii) is not wholly owned by another partially-owned parent entity that is required to apply a qualified IIR for the fiscal year.

Filing

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

The proposed approach is that every Constituent Entity located in Jersey will have an obligation to file a GIR in Jersey. However, this obligation can be discharged if the GIR is filed by:

-The Ultimate Parent Entity, or

-The Designated Filing Entity/Local Filing Entity.

Where the GIR is being filed by either the Ultimate Parent Entity or the Designated Filing Entity/Local Filing Entity, the Constituent Entity, must file a notification with the Revenue.

The notification must contain:

-Details of the entity that is filing the GIR, and

-The jurisdiction in which such an entity is located.

Where the GIR is filed by the Designated Local Entity it needs to outline the Constituent Entities that it is filing on behalf of.

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

Article 18 of the IIR law also requires submission of an additional self- assessment return (a ‘GloBE Top-Up Tax Return’) by the GIR filing date.

The MCIT return is due within 12 months after the end of the fiscal year

Payment

Article 25 of the IIR law requires the top-up tax to be paid by the return filing date.

Article 19 of the MCIT law requires an instalment payment of 50% of the reporting entity’s reasonable estimate of the amount of multinational corporate income tax payable by the entity for the fiscal year to be paid by 5 months after the end of the fiscal year. The remainder is payable by the MCIT return filing deadline.

Penalties

Part 6 of the IIR law (Part 5 of the MCIT law) provides for a number of penalties.

For instance, Article 28 of the IIR law provides that a person is liable to a fine of up to £12,000 if they do not submit the GIR, in full or by the deadline.

None Issued

None