Consultation on new tax compliance rules for Jersey Partnerships and their partners
February 02, 2022
The Government of Jersey has issued a consultation (closing 31 March 2022) on proposals to introduce new information reporting obligations from 2023 as a result of the extension of the Economic Substance (ES) regime to partnerships from June 2021 (Taxation (Partnerships – Economic Substance) (Jersey) Law 2021, as amended).
The consultation, however, goes beyond Economic Substance and the proposals seek to streamline the overall approach to taxation of partnerships in Jersey and their partners.
Key highlights
From 2023, all Jersey partnerships will be required to submit a new annual “Combined Notification”, making ES disclosures and providing a partnership tax statement where required.
This means that the first filing of a Combined Notification would take place in 2023, with respect to the 2022 Year of Assessment.
It is further proposed to align the submission date of the Combined Notification with the corporate tax return deadline of 31 December. The Combined Notification will be in a “smart” electronic form and submitted via an online portal, similar to the corporate tax return.
The Combined Notification will replace the existing Income Tax obligations of Jersey partnerships and their partners. Under the proposals, from 1 January 2023, all partners will be assessed by Revenue Jersey on their own share of taxable partnership income and every partner will be responsible for reporting and discharging their own tax liability arising from their share of the partnership. Appropriate changes to the Income Tax Law will be made accordingly.
In terms of format, the Combined Notification will be split into three sections:
Risk-based partnership identification notice (including disclosure of nature of activity and levels of turnover and profit)
Economic Substance requirements (broadly similar to the ES section on the corporate tax return, including available exemptions)
Partnership tax statement (if required - i.e. if the partnership income would give rise to Jersey income tax liabilities for any of the partners)
With respect to income taxes, the proposal is for most compliance matters such as associated appeals and claims to take place at the partnership level and any resulting change in taxable profits to be subsequently reflected in the partners’ tax assessments.
Next steps
The consultation closes for comments on 31 March 2022.
We have highlighted in previous alerts the coming into force of the ES Partnership law and the publication of joint guidance notes. Given that the Year of Assessment 2022 is already under way and that certain partnerships will already be subject to the ES test, ES classifications should be undertaken as soon as possible and any necessary remedial action taken to ensure affected partnerships are able to meet the test.
Likewise, although many partnerships will not be subject to the ES test, it is important that the partners undertake a classification assessment and are able to report why the partnership is not in scope. We are actively working through these assessments with clients, recognising the approach to exemptions under the partnership ES law differs significantly from the corporate ES regime. As referenced in the consultation, auditing of partnerships, particularly those claiming to be exempt, will be a key area of compliance activity for Revenue Jersey as they seek to demonstrate the effectiveness of the law to international peers. Significant consideration has gone into determining what initial information Revenue Jersey will require to risk rate and monitor the ongoing compliance of Jersey partnerships.
Given the proposed combined notification approach, it is also important that partnerships and their administrators fully understand the applicability of the Jersey income tax law to the partnership, to ensure they are well-positioned to make complete and accurate returns in due course, including not over-reporting. In most situations, individual partner details and profit shares should not be required.
It must be remembered that the ES test should be considered annually. Our experience from the corporate ES regime and recent corporate tax return filings was that those clients we assisted with substance assessments before or during the first in-scope period found it much easier when completing their tax returns further down the line, compared to those who undertook such assessments after the year of assessment and only in the run up to the tax filing deadline.
If you have any questions in relation to the above, please do not hesitate to get in touch with your usual PwC contact or any of the individuals listed below.
