Interim guidance on Pillar Two
Revenue Jersey recognises that in-scope Pillar Two taxpayers and advisers would benefit from as much clarity as possible on aspects of the Jersey Income Inclusion Rule (IIR) and Multinational Corporate Income Tax (MCIT) laws. Therefore, we are publishing the following guidance which deals with questions which have been frequently raised.
Jersey’s Pillar Two legislation is based on the OECD GloBE Model Rules and Commentary and thus there are certain areas of global application where Jersey will follow the consensus position of the OECD as it evolves.
But where we have scope to set out its interpretation of certain provisions we are keen to do so, in appropriate circumstances, to provide taxpayers with certainty. Guidance will be issued on an ongoing basis, check this page regularly for updates. It will be consolidated into the publication of a more comprehensive guidance document.
We continue to offer an open door for taxpayers and their advisers to raise questions regarding interpretation issues for their specific factual situations. If you have any queries email the Pillar Two Policy and Implementation Team at pillar2@gov.je.
Find more information on OECD Pillar One and Pillar Two.
Is the MCIT a QDMTT?
MCIT is a corporate income tax and a 'covered tax' as defined in Model Rule 4.2. It is not a domestic top-up tax or an alternative minimum tax.
This means that the MCIT charge increases the amount of covered taxes in Chapter 4 of Pillar Two. This subsequently increases the effective tax rate in Chapter 5.
The MCIT achieves the Pillar Two objective that in-scope MNEs pay the minimum level of tax.
When is a Jersey Limited Partnership a ‘resident in Jersey for the purposes of Jersey law’?
Both Multinational Corporate Income Tax (MCIT) Article 4 paragraph 4 and Income Inclusion Rule (IIR) Article 11 paragraph 4 use the phrase ‘regarded as resident in Jersey for the purposes of Jersey law’. Notably, the phrase refers to ‘Jersey law’, which is broader than ‘Jersey tax law’.
In the context of a Jersey Limited Partnership (LP) governed by the Limited Partnerships (Jersey) Law 1994, this determination includes the residence test contained in the Taxation (Partnerships – Economic Substance (Jersey) Law 2021 – meaning of ‘resident partnership’.
How is a Jersey branch of a partnership treated for purposes of the MCIT?
The Model Rules treat a permanent establishment such as a branch as an entity in its own right.
For the purposes of the MCIT (and the IIR), a branch of a partnership is treated like a branch of any entity. This includes a partnership that is treated as a stateless or flow-through entity.
What is an acceptable financial accounting standard for purposes of the MCIT?
For the avoidance of doubt, the definition of acceptable financial accounting standards is the same as the GloBE Model Rules definition contained in Rule 10.1.
Are synthetic securitisation arrangements considered to fall within the definition of ‘securitisation entity’?
MCIT Article 7(1)(b)(iii) confirms securitisation entities are excluded from the definition of a Jersey constituent entity.
MCIT Article 7(2) confirms that the term ‘securitisation entity’ has the meaning given by paragraph 24 of Chapter 6 (treatment of securitisation vehicles) of the OECD’s June 2024 Guidance. Notably, the OECD June 2024 Guidance gives an example of a synthetic securitisation, where in practice the underlying asset pool is not transferred to the SPV, but the creditors of the SPV are put in the same economic position as if the SPV had itself owned the underlying asset pool.
Where an SPV is a party of a derivative contract or guarantee and the securitisation arrangement synthetically transfers exposure to a (targeted) underlying asset pool, such synthetic securitisation arrangements meet the condition of ‘holding the legally segregated assets’ for the purposes of defining a securitisation entity for MCIT.
Does the MCIT provide taxpayers with the benefit of the GloBE Substance Based Income Exemption (SBIE)?
While the MCIT follows the GloBE computation in determining the amount of the GloBE net income or loss (GNI/L), the MCIT applies a 15% tax rate to the GNI/L (while also taking into account specified losses and certain credits).
The GloBE top-up tax calculation is made on excess profits, which subtracts a specified portion of costs related to tangible assets and payroll (see Model Rule Article 5.3).
Jersey’s MCIT does not provide the same outcome as the SBIE, as doing so would lead to a jurisdictional ETR below 15% (because the MCIT is a domestic covered tax and not a GloBE top-up tax regime).
Does Jersey intend to offer a Qualified Refundable Tax Credit (QRTC)?
MCIT Article 38 provides the States with power to make provision for a qualified refundable tax credit by regulation.
The Government remains committed to ensuring that Jersey maintains a competitive business environment.
Which funds in Jersey are considered to be ‘subject to a regulatory regime’ under the Model Rules that would allow them to be an ‘investment fund’ for GloBE purposes?
The definition of ‘investment fund’ in OECD Model Rule 10.1 contains a list of qualifying requirements, including in paragraph (f) that the entity (or its management) is ‘subject to a regulatory regime’ in the jurisdiction where the entity is established or managed. The OECD Commentary recognises that jurisdictions may take different approaches to the prudential regulation of funds. In Jersey, the JFSC regulates funds either directly or indirectly, but in either case the fund is subject to regulatory control.
Therefore, whether a fund is itself regulated or holds a certificate or permit under the CIF Law, or is indirectly regulated such as through its regulated service provider, it will be regarded as meeting the regulatory regime requirement.
How does the MCIT interact with the requirements of OECD Model Rule 3.2.7 regarding intra-group financing arrangements?
In-scope Jersey entities will be subject to a 15% corporate income tax under the MCIT. Thus they are not low-tax entities for the purposes of Jersey’s MCIT. Whilst the MCIT law does not specifically exclude the application of Model Rule 3.2.7, nonetheless, no adjustment should be made under Model Rule 3.2.7 in the computation of MCIT net GloBE income. This position applies to all in-scope Jersey entities.
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