This week a panel of tax experts shared their views on the OECD ‘Pillar Two’ and the resulting global corporate minimum tax rate, at a BVI Finance webinar. The webinar, ‘Taxing Times: What’s Next for Pillar Two and the Minimum Global Corporation Tax Rate’, was joined by panellists Oliver Cooper, Tax Consultant at Charles Russell Speechlys LLP; La Toya James, Director of the BVI International Tax Authority; Mark Pragnell, Director Pragmatix Advisory Limited; and Geoff Cook, Geoff Cook Advisory Ltd. 

What is Pillar Two? 

Once implemented, Pillar Two will apply to multinational businesses with annual revenues of at least 750 million EURO ($815 million USD). Organisations will need to pay a minimum tax rate of 15-percent.

According to the OECD Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy, Pillar Two consists of: “an Income Inclusion Rule (IIR), which imposes top-up tax on a parent entity in respect of the low taxed income of a constituent entity; and an Undertaxed Payment Rule (UTPR), which denies deductions or requires an equivalent adjustment to the extent the low tax income of a constituent entity is not subject to tax under an IIR.”

Additionally, Pillar Two applies a “treaty-based rule that allows source jurisdictions to impose limited source taxation on certain related party payments subject to tax below a minimum rate.”

No Requirement for Jurisdictions like BVI

Panel moderator, Oliver Cooper, said, “The agreement doesn’t mean that jurisdictions have to implement an IIR, it only means that signatories can’t bring a claim against governments introducing the tax,” adding, “The consequence is, jurisdictions can choose not to do so, and presently there aren’t any penalties for choosing not to.”

“What it does mean is that there is no requirement for jurisdictions like the BVI to introduce the IIR.”

Mark Pragnell said that the ability to offer tax breaks has been a very big driver of inward investment in a number of developing states and he foresees the IIR as having a bigger impact on those developing nations.

“The danger of the global minimum tax,” he stated, “is that it suppresses the overall amount of cross-border activity, the overall amount of investment, the overall amount of businesses trying to expand internationally. That will impact the offshores, but I don’t think the 15-percent is enough to do that frankly.”

Mr. Pragnell continued, “For me the fundamental danger of this is that by reducing tax competition, by reducing incentives, what you might have is a world which is less global and less prosperous and will impact the scale of the offshores as well.” 

How should IFCs respond to Pillar Two? 

Geoff Cook said international finance centres will take a pragmatic look at this, with a focus more on information sharing. 

Mr. Cook’s perspective is that “the overall impact will be felt more administratively than financially”.

He added, “I think we can comply and reaffirm the BVI’s reputation as a responsible corporate citizen, but the degree of adoption will vary and we will do enough to show genuine commitment and respectability.”

Mr. Cook also spoke about the OECD Global Forum as giving some protection for IFCs against discriminatory actions, such as ‘the powerful act against the small’.

“I think the OECD try to act equitably and fairly when developing these rules,” adding, “It’s been in the interest of British IFCs to engage with the OECD because if you have a universal set of rules, it’s a safer place to be and a better place for IFCs than to go it alone.”

Mr. Cook also said there are greater risks for countries like Ireland. Luxembourg, and the Netherlands.

Pillar Two and the ITA

Speaking about Pillar Two, ITA Director James opined, “In the BVI we have to take a pragmatic approach on what we decide to do and how it will work. It will be a very big administrative burden to implement a 15-percent tax,” adding, “It is very early but we will continue to work directly with the OECD to see how it may affect the jurisdiction and how they see us as players in this work.”

As for the impact on the ITA, she said, “We do believe the focus will be on information exchange with jurisdictions introducing the ‘top up tax’.”

Director James also said, “We are a jurisdiction that cooperates. While we don’t have [corporate] taxes, [the size of our registry] makes us very relevant when it comes to information sharing.” 

“The BVI Government continues to put resources into the ITA to ensure that we are able to follow the ever-changing landscape in taxation.”

BVI Finance’s Marketing and Media Relations Coordinator Adrianna Soverall facilitated Tuesday’s webinar and encouraged industry professionals to email questions about Pillar Two to events@bvifinance.vg. Watch the webinar here

For further information please contact:
Adrianna Soverall
Marketing and Media Relations Coordinator
asoverall@bvifinance.vg |Tel: 284-852-1957