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GUERNSEY ENACTS PILLAR TWO RULES

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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.  

Download PDF

Guernsey enacts Pillar Two rules


SIMILIAR INSIGHTS

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20/12/24

PRACTICAL IMPLICATIONS OF MASSACHUSETTS’ ADOPTION OF SINGLE-SALES FACTOR
APPORTIONMENT FOR CORPORATE FILERS

Beginning January 1, 2025, all corporations, financial institutions,
individuals, trusts, and estates in Massachusetts must use a single-sales factor
apportionment formula.

19/12/24

IMPLEMENTATION OF THE ITALIAN PENALTY PROTECTION REGIME FOR HYBRID MISMATCHES

The Italian Ministry of Economy and Finance, on December 6, approved the Decree
implementing the penalty protection regime for hybrid mismatch arrangements.

19/12/24

KEY HIGHLIGHTS OF THE FINAL AND PROPOSED FOREIGN CURRENCY REGULATIONS

Treasury and the IRS released regulations on the taxation of foreign currency
translation gains or losses arising from QBUs operating in a different currency
from their owner.

18/12/24

CJEU ISSUES RULING CONCERNING THE DISCRIMINATORY TREATMENT OF NON-RESIDENT
INSURANCE COMPANIES

The Court of Justice of the European Union (CJEU) issued its ruling in case
C-782/22, concerning the discriminatory treatment of non-resident insurance
companies.

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