There has been a heightened awareness around proposals to amend global corporate tax rules for large multinational enterprises (MNEs) over recent weeks, particularly in light of US President Joe Biden’s proposals as well as developments within the EU and progress being made by the OECD – and rightly so.

The proposals being put forward, and agreed in principle by the G7 finance ministers at the weekend, are significant for all countries engaged in cross border trade, and some countries will be more impacted than others.

The reality is that these proposals have been ongoing for months – years in fact – in an attempt to try and tackle large multinational profit shifting, and ensure that in particular the big global tech companies pay tax in the places where they do business.

It’s a very complex and technical area, with a number of parties involved. The OECD have taken a lead on proposals – called pillar 1 and pillar 2. Pillar 1 is about dealing with the tax challenges arising from digitalisation; pillar 2 is about ensuring that large multinational enterprises pay agreed minimum effective taxation on cross-border profits.

In tandem, the EU have announced the intention to implement measures, while the US’ late entry into the fray is largely the result of the change of administration in the US.

The issue has entered mainstream consciousness recently too with larger nations now facing up to the reality of having to fill huge national deficits off the back of a tumultuous twelve months of Covid mitigation measures.

But it was always the expectation that the OECD would take the lead and make representations in summer this year.

With the G7 having now agreed a number of measures and a way forward, the next step will be for the measures to be agreed by the G20 to gain widespread international approval. Again, that will be no mean feat, but we can anticipate progress on that later this year.

So what does this mean for Jersey? We have been tracking these developments for some time, via the OECD (where Jersey takes its lead on international regulatory matters, and where the Island has its own ‘seat at the table’ in international negotiations), whilst also keeping an eye on major moves by the EU and US. As such, these proposals are expected.  Much of the detail has still to be agreed but there are aspects of the design which are encouraging.

The proposals are aimed squarely at tackling large multinational companies, particularly large tech companies, which are not a significant feature of Jersey’s business model. The proposed design of Pillar 2 also aligns closely with Jersey’s existing tax model, which is under-pinned by robust and endorsed substance and BEPS policies. And the design of Pillar 2 makes provision for the unique role of exempt investment funds and vehicles. This is significant for Jersey, which manages more than $500bn in investment fund capital, put to work all over the world using the Island’s ability to provide a stable, straightforward platform for cross border funds business.

Of course, multilateral changes to the global corporate tax environment will not be without its challenges. These proposed changes have the potential to impact all countries, and it is absolutely our belief as a jurisdiction that any reforms must be implemented on a level playing field, balancing the interests of small jurisdictions as well as larger ones; developed as well as developing countries.

The global tax environment is hugely challenging and this is a once in a generation opportunity to provide some robust, sensible solutions to improve the international tax landscape and provide consensus and certainty – but it must be done right, consistently and with full agreement at international level.

That progress is now being made is significant and important, and we remain fully engaged with the key bodies involved as things progress over the coming weeks and months and the full details are agreed internationally – that may take some time.

Jersey has always been agile and well prepared to adapt to international changes. Our absolute focus continues to be on offering a stable, certain and attractive environment for supporting cross border investment in a well-regulated, transparent manner.