Crown Dependencies publish guidance on economic substance legislation
10 June 2019
Just before Christmas last year, the Jersey, Guernsey and Isle of Man governments (each of which is a Crown Dependency ‘CD’) announced new economic substance legislation, which had been drafted as each of the islands were at risk of finding themselves blacklisted by the European Union as ‘uncooperative tax jurisdictions’ by the EU Code of Conduct Group on Business Taxation.
While the legislation is not identical in each CD, given the similar context in which each island found itself, the CDs worked closely together to develop the relevant laws that would see them recognised as ‘cooperative’ tax jurisdictions. As a result, December’s economic substance legislation in each CD is very similar.
At the end of April, the islands issued a joint guidance document which provided further clarification on the application of each CD’s economic substance legislation.
Applicable from the 1st January 2019, the CDs’ economic substance legislation concerns companies that are tax resident in any of the jurisdictions and generate revenue from a number of ‘relevant activities. Examples of these include (but are not limited to) holding companies, intellectual property holdings and so on.
The newly-issued guidance gives more details on the aforementioned ‘activities’ and goes some way to better outline how and why different types of structure have been identified as being required to fall under the scope of the regime.
Furthermore, the guidance also provides clarity on how the economic substance test (a requirement outlined in December’s legislation) will be undertaken, and its requirements met in a more practical sense.
‘The guidance provides some welcome clarification for those with business links to Jersey, Guernsey and the Isle of Man,’ says ZEDRA Jersey’s Managing Director, Ashley Cox. ‘However, it is a working document, to which we can expect clarifications and revisions over time,’ he adds.
‘I think it’s also important to note that the Crown Dependencies are great places to do business, and our regulators have always been committed to building a reputable environment in which to do business,’ says Alan Patrick, ZEDRA’s Managing Director for the Isle of Man.
‘We recognise the new economic substance legislation and the following guidance as a formalisation of what is a usual requirement of doing business on the Isle of Man, Jersey or Guernsey. When we look at our own clients for example, they already operate under the framework of having appropriate substance in place as they go about their business activities, and they are most likely to already be compliant with the newly introduced economic substance legislation,’ Alan concludes.
If you have any questions relating to the guidance or the new economic substance legislation, please do not hesitate to contact us.
