Guernsey, Channel Islands

Organisation for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) Pillar Two

BEPS Pillar Two focuses on ensuring a minimum level of taxation and is centred around the following two rules:

• The Income Inclusion Rule (IIR).
• The Undertaxed Profits Rule (UTPR), which acts as a backup to the IIR by making a top-up tax adjustment in relation to profits of a constituent entity that is not in scope of the IIR.

Together, the IIR and UTPR are known as the global anti-base erosion (GloBE) rules. They would apply to certain multinational enterprise (MNE) groups with 750 million euros (EUR) or more in annual revenues and would by necessity rely on a common tax base. In essence, the GloBE rules would provide jurisdictions with the right to ‘tax back’ up to an agreed minimum rate of tax, where other jurisdictions have not fully exercised their primary taxing rights.

Guernsey has approved legislation to implement the OECD’s Pillar Two rules, effective 1 January 2025. Guernsey has implemented the Qualified Domestic Top-up Tax (DTT) and the Multinational Top-up Tax (MTT) for the Qualified Income Inclusion Rule, following the GloBE Model Rules with some modifications. Applying the rules and determining the impact are likely to be very complex and pose a number of practical challenges. 

The legislation passed also includes the obligation for MNE Groups to register with the GRS, to appoint a Domestic Filing Entity (‘DFE’), to submit DTT returns, and to submit MTT returns, if applicable. The deadline for registration is 12 months from the start of the first Fiscal Year commencing on or after the 1st January 2025 of the MNE Group. This means that a fiscal year commencing 1st January will have to be registered before end of the year. However, the Guernsey Revenue Service has extended the deadline for YoC 2025 to 28 February 2026. The process of registration includes the appointment of the Domestic Filing Entity. 

The DTT and MTT returns are due to be submitted 15 months after the end of the Fiscal Year to which the return relates. This deadline has been extended to 18 months for the first Fiscal Year. This means that the Fiscal Year ending 31^st December 2025 will have to submit the returns before 30th June 2027.

Tax return due dates

The Guernsey Revenue Service has decided to initiate steps to reinstate the original annual filing deadline of 30 November as follows:

• Year of charge 2024: 31 January 2026
• Year of charge 2025 onwards: 30 November