Pressure could be brought down on the Virgin Islands to bring in the 15 percent Global Minimum Tax on multinational giants if there is a change of United Kingdom government this year, according to UK professor specialising in the overseas territories.
The VI government has not yet decided whether it will join the initiative, while the Cayman Islands has ruled it out and Bermuda has said it will sign on.
With a general election looming in the UK, the ruling Conservatives slumped to an historic low of 20 percent in opinion polls this week — 27 points behind a resurgent Labour Party. The GMT move — known as “Pillar Two” of the Organisation of Economic Cooperation and Development’s broader plan to help ensure fair taxation — is intended to prevent a race to the bottom in headline corporate rates internationally, advocates say.
Under the reform, initially brokered by 140 countries in 2021, nations will be able to impose a top-up levy if profits by a multinational enterprise with an annual turnover of 750 million euros are taxed below 15 percent in another jurisdiction.
The new arrangement took effect on Jan. 1 in 55 countries, including European Union members, the UK, Japan and South Korea — though holdouts include the United States and China.
‘Grey list’ threat eases
Speculation that countries which refuse the new GMT regime could be put on the Paris based Financial Action Task Force’s so-called “grey list” of jurisdictions that receive enhanced monitoring eased last month when the FATF removed the United Arab Emirates from the list despite the country rejecting the GMT.
But Dr. Peter Clegg — a professor at the University of the West of England who has been monitoring Britain’s relationship with the overseas territories and crown dependencies for more than 20 years — said the VI could soon face increasing pressure from London to adopt the GMT.
“The momentum for change is building slowly across the OTs and CDs, and that is likely to grow as is often the case — for example with registers of beneficial ownership and the fiscal responsibility frameworks,” Dr. Clegg told the Beacon. “Another factor is a possible change of government in the UK, and any new government might want the OTs to adopt Pillar Two. So these two factors might bring more immediate pressures on the BVI than any potential black- or grey-listing.”
Dr. Clegg added, however, that the situation could also change quickly as the GMT becomes more common across the world. “I wouldn’t discount black- or grey-listing in the future as the number of countries/jurisdictions enacting Pillar Two provisions grows,” he said.
Current UK government
Despite signing the UK up for the GMT, the current UK Conservative government has appeared reluctant to try and impose its will on OTs over the issue.
Baroness Vere of Norbiton, parliamentary secretary at the UK Treasury, said in a Feb. 26 debate in the House of Lords that the OTs “set out their own tax legislation within their own legal structures, and it is certainly not for the UK government or parliament to drive a coach and horses through that.”
Dr. Clegg said the British government is reluctant to get involved, in part because of the pushback it has received from OTs when it has previously interfered in financial matters.
“Due to the local powers of the UK overseas territories in the area of financial matters, the present UK Conservative government is reluctant to intervene directly, also bearing in mind the significant unhappiness when the UK Parliament required the OTs to adopt registers of beneficial ownership,” Dr. Clegg stated.
He added that each OT has been taking its own path with the GMT rollout.
“Each of the OTs will consider their own position, and that is why there is some divergence of approach, at least for the moment,” he said. “Presently, only Bermuda has taken action and implemented a corporate income tax of 15 percent, subject to reductions for foreign tax credits — which may act as an offset — and [it] will be effective for fiscal years beginning on or after [Jan. 1, 2025].”
Gibraltar, he added, is in the planning stage, and the crown dependencies of Guernsey, Jersey and the Isle of Man also plan to make changes.
Effects in VI
An OECD working paper released in early January predicted that “investment hubs” including the VI would initially benefit from the GMT but could find difficulties going forward as the new system diminishes demand for complex tax structures.
Those “investment hubs” — which the OECD defines as jurisdictions where inward foreign investment exceeds 150 percent of gross domestic product — also included the Netherlands, Ireland, Jersey, Guernsey, Luxembourg, Singapore and Switzerland.
A UK general election must be held by next January, but while British prime minister Rishi Sunak has said he is “minded” to call it in the second half of this year, there is speculation in Westminster it could come as early as May.