Guernsey, Jersey, and the Isle of Man have been working together to address the EU Code of Conduct Group’s concerns about their corporate income tax regimes.
As you will be aware from previous KPMG updates, Guernsey, Jersey, and the Isle of Man have been working together to address the EU Code of Conduct Group’s concerns about their corporate income tax regimes.
As part of a review of over 90 jurisdictions, the EU Code Group concluded that Guernsey and the other Crown Dependencies were compliant with most EU principles of tax good governance. However, it did raise concerns over the lack of minimum substance requirements for resident companies.
Guernsey, along with the other Crown Dependencies, made a commitment to address these concerns and the islands have subsequently worked together with the Code Group to develop proposals which will enable them to address the EU’s concerns.
Today, the Governments of both Guernsey and Jersey have launched public consultations on the proposed introduction of legislation which will require companies, tax resident in their jurisdiction 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 Guernsey proposals are summarised below:
Demonstration of Substance
Core Income Generating Activities (“CIGA”)
Dependent on the sector in which a company operates, it will be necessary for it to demonstrate that the core activities associated with generating its income are undertaken in Guernsey. As noted in the consultation document, the proposed legislation will determine that CIGA for each sector, a broad overview of which is as follows:
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.
All companies carrying on a relevant activity must demonstrate:
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 Guernsey.
Changes to the corporate income tax return:
It is anticipated that the corporate income tax return will be amended to include certain key information, including:
Other points raised
The consultation document details some situations where sanctions may be imposed on non-compliant entities and requests input on further measures that may be necessary, including mandatory disclosure and the implementation of a beneficial ownership registry. In addition, input is sought with regards possible amendments to Guernsey’s corporate tax residence rules to comply with more standard international practices.
It is important to note that this process is not isolated to only the Crown Dependencies, as many other jurisdictions are facing the same challenges. Whilst the measures remain significant, it would be reasonable to say that they are not as onerous as many first feared. 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 conclusion of the consultation and, with that in mind, KPMG in the Channel islands will be organising seminars in late September to explore them.KPMG in the Channel Islands 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 Guernsey. Therefore, we would urge all clients, stakeholders, and residents of the island to take part in this survey, linked below, as the outcome of this consultation document and subsequent legislation is likely to shape the economic future of Guernsey for some time.