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A Matter of Substance

A Matter of Substance

KPMG seminar focuses on introduction of tax law Substance requirements


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Senior Marketing Executive

KPMG in the Isle of Man


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KPMG seminar focuses on introduction of tax law Substance requirements

Over 200 local clients and members of the business community packed into the Claremont hotel on 16 November to attend KPMG’s Seminar on the Substance requirements that are being introduced into Isle of Man tax law. 

Robert Rotherham began proceedings by giving an overview of the Organisation for Economic Co-operation and Development’s work in relation to Base Erosion and Profit Shifting (BEPS) and how the Isle of Man had implemented BEPS requirements to date.  In particular he reminded the audience that for those companies impacted, the first Country by Country Reporting deadline in the Island was drawing near.  Robert concluded his session by explaining that the EU was also running with a number of tax initiatives, of which the Substance requirements were of most significance for the Island at present.

KPMG was then delighted to welcome Nicola Skillicorn, Deputy Assessor of the Income Tax Division, who gave a summary of the Government’s response to the EU Substance requirements.  This response commenced with a political commitment to the EU in November 2017.    Nicola explained how the Island has been working closely with the Governments of Jersey and Guernsey to collectively develop draft legislation and guidance, with the Island’s draft legislation being published earlier this month and expected to be presented to Tynwald next month.

John Riva, Head of Tax from KPMG Channel Islands, gave an overview of the sectors that are impacted by the Substance legislation, which range from the regulated sectors of banking, insurance and fund management through to shipping, finance and leasing, holding companies and certain other headquartering, distribution and service related activities.  John highlighted that intellectual property holding companies have been the area of sharpest focus by the EU, which is reflected in the particularly onerous requirements being imposed on such companies.

David Parsons then discussed the detail of the Substance requirements, particularly in relation to the requirements for being directed and managed from the Island, having adequate people, premises and expenditure on the Island, and a requirement to conduct core income generating activities in the Island.  He also set out the sanctions for failing to comply with the rules, which include significant financial penalties, exchange of information with EU Member States and ultimately strike-off from the Companies Registry.  David concluded his remarks by commenting on the steps that companies should now be considering in light of the anticipated 1 January 2019 implementation date for the legislation.

John Riva drew the seminar to a close by providing a timely update on the position of a number of the British Overseas Territories, which gave similar commitments the EU to introduce Substance legislation but are perhaps less well equipped to cope with what is really required.

These new rules raise some potentially complex questions and companies would be well advised to start considering their impact now, particularly in view of the speed at which they are set to come into force.

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