On 23 December 2024, Gibraltar introduced the Global Minimum Tax Act 2024 which is deemed to have come into operation on 31 December of the previous year. While the Act’s introduction may not have made headlines everywhere – particularly coming the day before Christmas Eve – its passing is critically important to Gibraltar’s ongoing strategy of positioning itself amongst the most compliant jurisdictions worldwide jurisdictions when it comes to tax regulation. In essence this is the tax version of “doing the right thing”.

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Why is this significant? Because being aligned with global standards enables Gibraltar to attract top-tier multinational companies, leveraging its other advantages as a world-class jurisdiction for international business. This has been a recurring theme in many of my previous articles and the introduction of this legislation further cements Gibraltar’s reputation globally. 

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To fully appreciate the importance of these initiatives, let us take a step back and review the fundamentals behind the new rules – including how and why they have evolved to this point. 

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Gibraltar’s Global Minimum Tax Act has been enacted as part of a broader international effort initiated by the Organisation for Economic Co-operation and Development (OECD). This is in fact the second stage of the overall project, originally adopted as early as 2013 alongside the G20. The overall aim is to combat tax avoidance strategies that exploit different tax rates, particularly in low or no-tax countries.

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Readers keen to learn more may refer to this excellent OECD summary that includes a link to the original action points from the outset of the initiative.  Base erosion and profit shifting (BEPS) | OECD More recent work, resulting in Pillars 1 and 2 are, to use a current British government expression, all about “levelling up” global taxation, ensuring that a minimum corporate tax is paid regardless of where a business is located. This has become even more important in today’s digital economy where determining the exact location of business activities, profits generated and therefore the collection of taxes has become increasingly complex.

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Our industry is fond of serving up a smörgåsbord of acronyms and technical jargon and BEPS’ “Pillars” structure is no exception. The thinking behind all this is, however, quite straightforward – and hugely relevant. Let us look at the proposals in more detail.

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Pillar 1 applies to the largest multinational enterprises and seeks to reallocate a portion of their profits to the countries where they generate revenue rather than solely where they are headquartered. This targets transfer pricing issues and profit allocation strategies ensuring that countries where businesses operate and customers located receive a fair share of tax revenues.

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Absent these rules, companies could generate profits in overseas markets without establishing a physical presence or paying local taxes. Pillar 1 addresses this by granting taxing rights to market jurisdictions and introducing dispute resolution mechanisms to manage conflicts between countries over tax allocation. 

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Pillar 2, introduced in late 2021, establishes a global minimum corporate tax of 15% to prevent tax avoidance and “base erosion”. It primarily applies to multinational companies with annual global revenues exceeding €750 million. Whilst this is a high threshold, as it is based on turnover rather than profit, it will still capture a substantial number of global businesses – including an increasing number operating in Gibraltar.

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Notably, the OECD has signalled its intention to expand Pillar 2’s scope. This may occur by more firms reaching the €750 million threshold or lowering the threshold itself, thereby including more businesses. Given these developments, it is crucial for Gibraltar to be proactive, and I am pleased to see it making its mark by early implementation.

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Under the new rules, if a company structures its operations in a way that results in a lower tax rate than the global minimum, a “top-up tax” (known as the Income Inclusion Rule) will apply to ensure the effective tax rate reaches the minimum rate of 15%. Additionally, a provision related to “undertaxed payments” empowers jurisdictions to ensure that tax payments meet the requirement.

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To comply with these global requirements, Gibraltar has enacted legislation reflecting the principles of Pillar 2, incorporating specific provisions such as a Domestic Top-up Tax and the Income Inclusion Rule.

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Although this is an OECD-driven initiative, there are countries – most notably the United States – that have yet to adopt it into their tax laws. However, the new rules will still impact American multinationals operating abroad. Overall, the project represents a major shift in international tax affecting business worldwide.

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In my view, there are two key reasons why Gibraltar’s timely implementation of the OECD’s BEPS framework is critical. By adopting these measures early, Gibraltar reinforces its commitment to international tax compliance, strengthening its credibility among global tax authorities and corporate advisors. This sends a clear message that Gibraltar is a responsible and transparent jurisdiction, making it an attractive location for multinational businesses.

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Second – and as I have emphasised before, low tax rates should not be the primary consideration when selecting a jurisdiction for an international headquarters or holding company. If a lower tax base can be legitimately arrived at as part of the planning process, then all well and good but two further aspects are more important, First the level of service that may be expected – at Acquarius, we take pride in delivering exceptional professional service, which is a crucial factor in business decision-making. Second, companies need confidence in a country’s legal system and regulatory environment. Gibraltar consistently demonstrates these strengths, offering businesses both security and reliability.

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Gibraltar’s early adoption of these new global tax rules – currently targeting the largest multinational enterprises – further enhances its reputation as a world-class international business hub. This initiative underscores its commitment to compliance and transparency, positioning Gibraltar as a responsible and forward-thinking financial centre.

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For those considering Gibraltar as a base for international business, these developments provide yet another compelling reason to view it as a jurisdiction of choice. I welcome this initiative with open arms and am confident that it will enhance Gibraltar’s reputation and economic prospects in the years to come.