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Crown dependencies update economic substance guidance

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On 22 November, Guernsey, Jersey and the Isle of Man introduced further additions to their joint guidance on legislation requiring companies resident in the islands to demonstrate ‘economic substance’ sufficient to comply with EU rules. The guidance was last updated in April.

The updated guidance confirms that collective investment vehicles regulated in the territories will be out of scope of the legislation, although their subsidiaries will have to meet the substance requirements in relation to any ‘relevant activities’. Other changes include:

  • a new section on cell companies, setting out differences in the treatment of protected cell companies and incorporated cell companies;
  • new sections on insurance, shipping, intellectual property companies and high-risk intellectual property companies;
  • clarification on what constitutes ‘core income generating activities’; and
  • further detail around sanctions for failing to meet the economic substance requirement in an accounting period.

Each of the Crown dependencies introduced legislation with effect from 1 January 2019 requiring resident companies to demonstrate a sufficient degree of ‘economic substance’ to comply with EU rules on non-cooperative jurisdictions for tax purposes. This legislation responded to concerns identified in 2017 by the EU’s Code of conduct group on business taxation, that the Crown dependencies lacked the legal requirements necessary to ensure entities doing business there could not be used artificially to attract profits that do not meet international standards on ‘economic activities’ and ‘substantial economic presence’.

See economic substance pages for Guernsey, Jersey and Isle of Man.

Issue: 1468
Categories: News