On the back of the recent endorsement to the Island’s policies, which was perhaps the first time that the EU publically agreed that the Island is not a Tax Haven, Revenue Jersey have issued draft Guidance Notes alongside the other Crown Dependencies with regards to the Taxation (Companies – Economic Substance) (Jersey) Law 2019 (“ESL”). A link to the draft Guidance Notes can be found here.
The Guidance Notes establish some useful principles that will assist Boards of affected companies to determine their compliance with the new requirements. We highlight the following aspects:
- The Guidance Notes are still “work-in-progress” and have a number of gaps such as the guidance on insurance, shipping and intellectual property.
- Examples of what constitutes core income-generating activities (“CIGA”) for banking, holding companies, finance and leasing, fund management, distribution and service centres and high risk IP companies are included in Section 3.
- Guidance has been provided on “Directed and Managed” (Section 3.13).
- A definition of employees and guidance on outsourcing have been provided at Sections 3.14 and 3.16, respectively.
- Guidance on what a resident company carrying on ‘relevant activities’ is expected to report in the 2019 Income Tax Return has also been released (a link to this document can be found here).
There are a number of important matters that we would bring to your attention:
- In order for a relevant activity of a company to be viewed as ‘directed and managed’, the company is expected to hold at least one board meeting per year and that where more than one meeting is held, then it is expected that the majority of such meetings will be held in Jersey.
- The CIGA that generate the income arising from the relevant activities must be performed in the Island. This is consistent with the proposed amendment to the Law which was recently lodged (please click here to view the amendment).
- Sanctions for failure of the economic substance requirements will include exchange of information with “Competent Authorities in other jurisdictions”. The current wording of the legislation is that the information will only be exchanged where the immediate parent, the ultimate parent or the ultimate beneficial owner is resident in the EU. The Guidance Notes reflect the proposed changes in Law.
As always, KPMG will be assisting its clients in addressing the requirements of the legislation. Please click here if you would like to consider our breakdown of the ESL, which deserves special reflection and analysis.
If you would like to discuss any of the above, do please contact us