Background
In 2021, 130+ OECD member jurisdictions agreed a two-pillar solution to address the global tax challenges arising due to changes in the economy, in particular as a result of increased digitalisation.
Pillar One proposed changes so that the largest global companies are taxed where they are making profits, regardless of whether there is a physical presence there. It appears unlikely that this will have a significant impact on the Isle of Man.
Pillar Two seeks to implement a minimum global corporate tax rate of 15% via an “Income Inclusion Rule” (IIR), which imposes a top-up tax on a parent entity where a group member has been subject to a lower rate of tax, or an “Undertaxed Payment Rule (UTPR), which requires adjustments to taxable income when a group member has not been subject to tax under an IIR. There is also a treaty-based rule which allows jurisdictions to impose taxation on certain related party transactions which have not been subject to tax at the minimum rate elsewhere.
Update on the Isle of Man Position
On 19th May 2023, Isle of Man Government announced, via a joint statement with Jersey and Guernsey, that the three crown dependencies will apply a joint approach to the implementation of OECD’s Pillar Two framework (Joint Statement – Pillar 2 Framework (gov.im))
This is expected to result in the implementation of a domestic minimum tax rate of 15%, applicable to large multinational groups (group turnover in excess of €750m) with effect from 2025. Essentially, members of these groups which are resident on the Island will be subject to an effective tax rate of 15% on their profits.
Companies which do fall within the scope of the legislation, which will be the vast majority of business, will not be impacted and will continue to fall within the current 0%/10% tax regime.
Further details will follow but for now, at least, we have some clarity on the path the Isle of Man Government is taking and the timescales involved in implementation.