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Consultation on the introduction of substance requirements for certain Jersey tax resident companies

Introduction of substance requirements

Jersey, Guernsey and the Isle of Man have been working together to address the concerns of the EU Code of Conduct Group (Business Taxation) (“the COCG”) regarding economic substance.


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Jersey, Guernsey and the Isle of Man have been working together to address the concerns of the EU Code of Conduct Group (Business Taxation) (“the COCG”) regarding economic substance. 

As part of a review of over 90 jurisdictions, the EU Code Group concluded that Jersey and the other Crown Dependencies were compliant with most of the EU principles of tax good governance, including the general principles of “fair taxation”. However, it did raise concerns regarding the lack of legal substance requirement for doing business in and through the respective jurisdictions.

Jersey, along with the other Crown Dependencies, made a commitment to address these concerns by the end of December 2018 and the Islands have subsequently worked together with the COCG to develop proposals to meet their commitments.

The Governments of both Jersey and Guernsey have launched public consultations on the proposed introduction of legislation which will require companies tax resident in their jurisdictions and undertaking specific income generating activities, to demonstrate that they have sufficient substance in their respective jurisdictions. The consultation closes on 31 August 2018. The key features of the Jersey proposals are summarised below.

The outline proposal developed by the Crown Dependencies consists of three distinct stages.

Stage 1: identify companies carrying on “relevant activities”

The term “relevant activities” has been derived from categories of geographically mobile income identified by the OECD forum on harmful tax practices and include the following:

  • banking,
  • insurance,
  • fund management,
  • finance and leasing,
  • headquarters’ activities,
  • shipping,
  • holding company activities and
  • intellectual property (“IP”).  

Stage 2: impose substance requirements on companies undertaking relevant activities

This is a two part process.

Part 1: “directed and managed” in Jersey

Jersey resident companies undertaking relevant activities will be required to demonstrate that the company is “directed and managed” in Jersey, as follows:

  • There must be meetings of the Board of Directors in Jersey at adequate frequencies given the level of decision making required.
  • During these meetings, there must be a quorum of the Board of Directors physically present in Jersey.
  • Strategic decisions of the company must be set at meetings of the Board of Directors and the minutes must reflect those decisions.
  • All company records and minutes must be kept in Jersey.
  • The Board of Directors, as a whole, must have the necessary knowledge and expertise to discharge their duties as a board.

Part 2: core Income Generating Activities (“CIGA”)

Companies tax resident in Jersey need to demonstrate that the core income generation activities associated are undertaken in Jersey (either by the company or a third party) and may include the following:

Banking - raising funds, managing risk, taking hedging positions, providing loans, credit or other financial services for customers, managing regulatory capital, preparing regulatory reports and/or returns

Insurance - predicting and calculating risk, insuring or re-insuring against risk, providing client services

Fund Management - taking decisions on the holding and selling of investments, calculating risks and reserves, taking decisions on currency, interest fluctuations and/or hedging positions, preparing relevant regulatory and/or other reports for government authorities and investors

Financing and leasing - agreeing funding terms, identifying or acquiring assets to be leased (in the case of leasing), setting the terms and duration of acquiring assets to be leased (in the case of leasing), monitoring and revising agreements, managing any risk

Headquarters - taking relevant management decisions, incurring expenses on behalf of group entities, co-ordinating group activities

Shipping - managing the crew (including hiring, paying and overseeing crew members), hauling and maintaining ships, overseeing and tracking deliveries, determining what goods to order and when to deliver them, organising and overseeing voyages

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 additionally be subject to the requirements associated with that activity

IP holding companies - IP holding companies will have more rigorous requirements and will need, inter alia, to demonstrate the existence in Jersey of research and development, marketing, branding, distribution, strategic decisions and managing principal risks and carrying on underlying trading activities within Jersey.

All companies carrying on a relevant activity must demonstrate:

  • That an adequate level of (qualified) employees exists in Jersey, or an adequate level of expenditure on outsourcing to service companies in Jersey, proportionate to the activities of the company.
  • That there is an adequate level of annual expenditure incurred in Jersey, or an adequate level of expenditure on outsourcing to service companies in Jersey, proportionate to the activities of the company.
  • That there are adequate physical offices and/or premises in Jersey, or an adequate level of expenditure on outsourcing to service companies in Jersey, for the activities of the company.

Collective Investment Vehicles (CIVs)

It is recognised that reduced substantial activity requirements should apply to CIVs as they differ from other companies with geographically mobile activities. The reduced substance requirements will be aligned with the regulatory framework in Jersey.

Stage 3: enforcement of the substance requirements

In order to demonstrate meaningful enforcement of any proposed substance requirements, it is proposed that a formal hierarchy of sanctions for non-compliant companies is introduced with increasing severity of sanctions imposed for persistent non-compliance.

Other matters

Changes to the corporate income tax return

It is anticipated that the corporate income tax return for the 2019 year of assessment will be amended so that companies carrying on relevant activities will be required to disclose the following:

  • business activity;
  • amount and type of gross income;
  • amount and type of expenses and assets;
  • premises; and
  • number of employees, specifying the number of full time (equivalent) employees.

Increased transparency measures 

The consultation document sets out Jersey’s plan to work with the EU to provide access for tax and law enforcement authorities to legal and beneficial ownership information for bodies corporate.  In addition, Jersey plans to introduce legislation for mandatory disclosure of certain cross border transactions by 31 December 2019.

KPMG comments

It is important to note that this process applies to other jurisdictions including Bermuda, Cayman Islands, BVI and UAE. Whilst the measures remain significant, it is expected that much of what is required in the proposal currently occurs in practice. That said, the detail on what constitutes “adequate levels of staffing and expenditure” is yet to emerge. It is expected that some of that detail will be available following the consultation and, with that in mind, KPMG will be organising seminars in late September/early October to explore them.

KPMG will be responding formally to the consultation and, while we recognise the period of consultation is short, the outcome of this process is determinative for the future of businesses in Jersey. Therefore, we would urge all clients, stakeholders, and residents of the Island to take part in this consultation (see link below), as the outcome of this consultation document and subsequent legislation is likely to shape the economic future of Jersey for some time.


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KPMG International Cooperative (“KPMG International”) is a Swiss entity.  Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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