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Delayed implementation of Pillars 1 and 2 and continuing uncertainty possibly contributing to restructuring wave

Despite the OECD's best attempts at expediting implementation of the Pillar 1 and 2 proposals agreed to in principle in October 2021 by 137 jurisdictions as a multilateral approach to seek to address tax challenges arising from the digitalisation of the economy, progress has been slow. The OECD has been hamstrung by a number of aspects, not least the lingering effects of COVID-19 and  the continuing war in Ukraine. There are domestic difficulties regarding ratification (e.g. question marks over US appetite to pursue Pillar 1 and the ability to get it through Congress as well. For its part, Poland is resisting the EU Commission's desire to plow ahead with Pillar 2 (perhaps simplistically labelled as a 15% minimum tax rate) absent a wider 'buy-in' to Pillar 1, in particular from the US. There are, in addition, practical issues regarding the devising of a holistic form of legal multilateral instrument for implementation and reconciling this with numerous existing bilateral treaties), etc.

On the issue of US 'buy-in' (which many consider a key and pivotal uncertainty), the OECD's Secretary General, Mathias Cormann, predicts that the threat of reactivation and possible extension of unilateral digital tax levies by numerous jurisdictions in the absence of a global approach (most likely to affect large US multinationals most severely), should mean that commerciality will triumph: “In the end self-interest does prevail and as far as Pillar One is concerned I just can’t see that large American multinationals would prefer to be on the receiving end of a proliferation of different tax regimes...”. 

Nevertheless, given the continuing uncertainties and dissonant (and in some cases dissident) views and approaches by or within various jurisdictions, trading blocks and groups, it is perhaps not entirely coincidental that there is a hive of restructuring activity afoot. This includes relocations of businesses and operations from one jurisdiction to another, possibly seeking greater certainty and/or in anticipation of how they expect the international tax landscape to materialise.  

Gibraltar's re-domiciliation legislation already affords a very time and cost-efficient continuation process both into and out of Gibraltar and the following jurisdictions. It has, in fact, on many occasions been used as a final destination - both for continuing operations as well as for bringing an entity to the conclusion of its life cycle, noting the wide-ranging powers afforded to Liquidators of a Gibraltar entity allowing significant flexibility in the manner of effecting liquidation distributions. Gibraltar has also been used as an intermediary step between the traditional 'offshore' and 'onshore' worlds (interestingly, a recent matter looking to convert an entity from an EU state into a US Inc. via Gibraltar):  

(a) EEA States; 

(b) Anguilla, Bermuda, British Antarctic Territory, British Indian Ocean Territory, Cayman Islands, Falkland Islands, Guernsey, Isle of Man, Jersey, Montserrat, Pitcairn, St. Helena, Turks and Caicos Islands, British Virgin Islands; 

(c) States which are members of the British Commonwealth; 

(d) Liberia; 

(e) Panama; 

(f) Singapore; 

(g) Switzerland; 

(h) Hong Kong; and

(i) the United States of America

In addition, there is already a very advanced draft of a re-vamp to our re-domiciliation provisions which should shortly extend the scope to any jurisdictions which also permit the same under their own domestic legislation.

As changes to the international tax and business landscapes continue to rain down, Gibraltar is well placed (geographically, legally and practically) to offer the best of ports from which to weather any storm, whether temporarily or permanently or on a more permanent basis.

A global overhaul of corporate tax rules for the largest multinationals won’t come into effect until at least 2024 as technical details are taking longer to finalize than initially expected.

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