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Crown Dependencies To Ensure Firms Have Economic Substance

by Amanda Banks, Lowtax.net, London
17 August, 2018

The Crown Dependencies of Jersey, Guernsey, and the Isle of Man are consulting on proposals to require companies tax-resident in the islands undertaking specific income-generating activities to demonstrate they have sufficient "substance" in the islands

The proposals follow the screening of a large number of non-EU jurisdictions undertaken by the European Commission Code of Conduct Group in 2017, the territories said. This was to assess standards of tax transparency, fair taxation, and compliance with measures to prevent base erosion and profit shifting.

While the Crown Dependencies were re-affirmed as co-operative jurisdictions in December 2017, the European Commission highlighted concerns about the ability of Jersey, Guernsey, and the Isle of Man to demonstrate that companies tax resident in their jurisdictions operated with sufficient substance to justify access to their corporate tax regimes.

The three jurisdictions made a commitment in November 2017 to the European Commission to address these concerns and have since worked closely together to develop proposals that will meet this commitment by December 31, 2018.

These proposals will require companies that are tax resident in Jersey, Guernsey, or the Isle of Man, and are engaged in key activities identified by the EU, to demonstrate that they meet minimum substance requirements as part of their annual tax return.

The key activities identified by the European Commission Code of Conduct Group are: banking, insurance, fund management, financing and leasing, shipping, intellectual property, collective investment vehicles, and holding companies that generate income from any of these key activities.

The substance requirements are said to vary for each key activity to reflect the different needs of the companies involved and are designed to be fair and proportionate while ensuring that there are sufficient activities undertaken in the relevant jurisdiction to reflect the amount of profits accounted there.

The substance requirements will include being able to demonstrate that the company is directed and managed from the relevant Crown Dependency, that the company has adequate levels of employees as well as annual expenditure and physical offices.


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