The governments of Guernsey and Jersey have now published a consultation document describing the outcome of their discussions with COCG and at a high level the principles of the approach that is intended to apply for companies with accounting periods beginning on or after 1 January 2019.
The paper notes the Crown Dependencies have engaged closely with the OECD. This is because the EU scoping paper issued in early June indicated that substance requirements should mirror those used in the OECD’s Forum on Harmful Tax Practices (FHTP) work on preferential regimes.
The substance requirements for companies carrying on relevant activities will be aimed at showing direction and management occurring in Jersey through board meetings, and secondly the demonstration of the existence of core income generating activities allied to the relevant activity, and in particular demonstrating adequate levels of employees, expenditure, and availability of premises or adequate outsourcing to service providers.
As regards holding company activities, companies which purely hold equities will need to confirm they meet all applicable corporate law and tax filing requirements, where holding companies also conduct other relevant activities they will have to demonstrate the core income generating activities for those activities.
Enhanced substance requirements are proposed for intellectual property income generating companies and it is noted that reduced substance requirements, aligned with the regulatory framework in Jersey, should apply to collective investment vehicles.
The proposals on enforcement cover a range of triggers and sanctions including detailed audit, financial penalties, exchange of information with member states and striking off.
The consultation paper also notes plans to make progress on two additional transparency measure requirements sought by the EU relating to beneficial ownership information and mandatory disclosure rules. The Government of Jersey plans to introduce legislation for mandatory disclosure, aligned to the EU's DAC6, by 31 December 2019.
Companies tax resident in Jersey and Guernsey will need to consider the principles discussed in the consultation and how they will apply in their circumstances, bearing in mind the intended application of the new rules from 1 January 2019.
If you have any queries in relation to the consultation or wish to discuss this matter further, please don't hesitate to get in touch with Justin Woodhouse or David Waldron.
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