Channel Islands: Economic substance and partnerships (Guernsey)

There will be changes to the reporting requirements of partnerships.

There will be changes to the reporting requirements of partnerships.

The Guernsey Revenue Service issued Circular 18 (11 May 2021) to confirm the extension of Guernsey’s economic substance rules to partnerships.

Previously, the economic substance rules applied only to Guernsey resident companies.

The circular confirms that the term “partnerships” under this new guidance includes:

  • General partnerships formed in Guernsey
  • Limited partnerships (both with and without legal personality) formed under the:
    • Limited Partnerships (Guernsey) Law, 1995
    • Limited liability partnerships formed under the Limited Liability Partnerships (Guernsey) Law, 2013
  • Foreign partnerships (including limited partnerships and limited liability partnerships) formed outside of Guernsey and that have their “place of effective management” in Guernsey and carry on business activity in Guernsey

The term “place of effective management” is new to Guernsey’s domestic tax law and is defined as: “the place where key management and commercial decisions that are necessary for the conduct of the partnership’s business as a whole are in substance made.”

  • For partnerships existing on 30 June 2021, the economic substance rules will apply to the first financial period commencing on or after 1 January 2022.
  • For partnerships established from 1 July 2021 onwards, these economic substance rules will apply to every financial period of the partnership.

There will also be changes to the reporting requirements of partnerships, to include:

  • A requirement for all partnerships (including relevant foreign partnerships) to register with the Revenue Service
  • An annual filing requirement for all partnerships confirming whether they need to file economic substance information, in the same timeframe as companies
  • Mandatory online filing of partnership tax returns, accompanied by financial statements

The economic substance return for partnerships are expected to be substantially similar to the economic substance return for companies. 

KPMG observation

Tax professionals expect that the amendment will meet the requirements of the EU Code Group, which in November 2020 made it clear that it expected partnerships to be subject to economic substance rules in all of the “nil” or only nominal tax jurisdictions. These requirements are expected to be replicated in Jersey and the Isle of Man.

Read a June 2021 report prepared by the KPMG member firm in the Channel Islands


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