Key aspects in relation to proposed economic substance requirements
30 November, 2018
Jersey and Guernsey, with the Isle of Man, have published a document discussing key aspects of their proposed economic substance requirements. A link to the document is here and it says it will either be updated or replaced by comprehensive guidance notes which will be published in due course.
It also trails that each Crown Dependency will redesign its tax return, to ensure that all tax resident companies will be required to provide additional information concerning activities and income. Some points of interest:
Direction and management
For this part of the economic substance test the expectation is noted that even a company with a minimal level of activity will have at least one meeting of its Board of Directors per year.
It is confirmed that in a case where there are corporate directors the requirements of necessary knowledge and experience of the board will apply to the individual officers of the corporate director actually performing the duties.
Core income generating activities (CIGA)
The document comments that it is not necessary for a company to perform as island CIGA all of the CIGA listed in the proposed legislation in order to demonstrate substance. But the CIGA undertaken in the island must be commensurate to the income subject to tax in the island.
Outsourcing
As the draft legislation indicates, the note stresses that outsourcing of island CIGA is possible but it must be accompanied by an ability to demonstrate adequate supervision of the outsourced activities.
In the same vein, where island CIGA is outsourced the resources of the service provider in the island will be taken into consideration when determining whether the adequacy tests are met. There must be no double counting if people services are provided to more than one company.
Adequacy
The document acknowledges that the stringent regulatory requirements in the islands create an expectation that companies carrying on banking, insurance or fund management will already be operating with adequate resources and expenditure. However this does not relieve such companies from complying with the proposed legislation's filing requirements and monitoring.
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