On 5 December 2017, the European Union (EU) proposed their list of "non-cooperative" taxation jurisdictions, popularly referred to as the 'EU Blacklist'. As part of this exercise, several of the traditional offshore jurisdictions, including the Guernsey, Jersey BVI, Cayman, and others, have been deemed by the EU to 'facilitate offshore structures or arrangements aimed at attracting profits that do not reflect real economic activity ('substance') in the jurisdiction', and added to a Greylist.
Guernsey, and other such international finance centres, committed to addressing the EU's concerns about a supposed 'lack of economic substance' by introducing so-called substance legislation by the end of 2018, in order to stay off the proposed EU Blacklist. Please note that each jurisdiction has taken a slightly different approach; Guernsey’s approach is outlined below at a high level. This approach has meant that Guernsey has now been moved off the Greylist and placed in the “White list” of fully co-operative jurisdictions.
The Government of Guernsey passed the “The Income Tax (Substance Requirements) (Implementation) Regulations 2018” (the Law). The law came into force on 1 January 2019. We have guidance from Guernsey authorities as to more detailed definitions of the relevant activities as well as what Substance might be required in way of some examples and we expect further details to follow throughout the year.
Companies in scope
Substance requirements apply to Guernsey entities that are managed, controlled and are tax resident in Guernsey and which conduct relevant activities. A relevant entity includes:
- A Guernsey company that is incorporated under the Companies Law
- A company that is incorporated outside of Guernsey but managed and controlled and are tax resident in Guernsey
Relevant activities identified by the EU and more recently by the OECD include:
- Banking business
- Insurance business
- Fund management business
- Finance and leasing business
- Headquarter business
- Shipping business
- Holding business
- Intellectual property business
- Distribution and service centre business
How it could affect you
Broadly speaking, if Guernsey companies that are Guernsey tax resident are conducting any of the relevant activities listed above, then substance may be required in the jurisdiction; if not, additional substance should not be required.
From 2020, all relevant entities must submit a corporate Tax return including a declaration as to whether or not they are conducting a relevant activity.
What next and how Vistra can support you
It is important to first understand where your company is intended to be tax resident. Once this is clarified, the next step is to ascertain where your company is actually tax resident based on the requirements in the relevant jurisdiction such as place of incorporation and management and control.
If your company is not tax resident in the intended jurisdiction Vistra can assist you in seeking the relevant advice and implementing that advice to ensure residence in the correct jurisdiction.
If the company is resident in the correct jurisdiction then Vistra can help you to assess whether or not the activities of the company result in it being within the scope of the new substance legislation through our specially designed Classification service, and, if it is, provide you with all of the necessary facilities, services and personnel to ensure that it fulfils its obligations under these new laws.