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28 February 2019
New proposed requirements for an economic substance test for Jersey tax-resident entities have been published to meet the requirements of the EU Code of Conduct Group.
The legislation, once approved by Privy Council, will apply with effect from 1 January 2019 and will establish new tests for certain tax-resident companies carrying on relevant activities in respect of demonstrating that they are directed and managed in Jersey and that their core income generating activities (CIGAs) are undertaken here.
'Relevant activities', for the purposes of this article, include:
Specific consideration should be given to outsourcing arrangements, to each company within a relevant structure and to updating policies and procedures. Further consideration also needs to be given in respect of the detailed guidance on the definition of 'adequacy' that is anticipated soon and in respect of companies generating income from intellectual property, which will be subject to more stringent tests.
The requirements are as follows:
Jersey tax-resident entities which carry on relevant activities will need to demonstrate that they carry out CIGAs in Jersey. The nature of the CIGAs varies by industry sector and is summarised below.
CIGAs for holding companies
The law requires holding companies to carry out all activities related to their business in Jersey. This will require each holding company to carry out an analysis as to what functions need to be carried out in Jersey, which is likely to vary depending on the function and purpose of the holding company.
CIGAs for companies headquartered in Jersey
Companies headquartered in Jersey will need to demonstrate that the following CIGAs take place in Jersey:
Companies carrying on a relevant activity must be able to demonstrate:
The new law proposes sanctions for non-compliance to include financial penalties, strike-off from the register of Jersey companies and reporting to any relevant tax or regulatory authorities.
The following information should be considered:
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