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04 March 2021
Which arrangements are affected by the regulations?
Who has an obligation to report?
What are the reporting requirements?
Are the reporting requirements retrospective?
What are the ramifications for failing to comply?
The Taxation (Implementation) (International Tax Compliance) (Mandatory Disclosure Rules for CRS Avoidance Arrangements and Opaque Offshore Structures) (Jersey) Regulations 2020 are expected to come into force shortly. The regulations will primarily affect promoters and service providers of certain arrangements, implementing a 30-day window to report disclosable arrangements to the Comptroller of Revenue. Failure to comply may lead to financial penalties and, in some instances, criminal penalties. It is important that intermediaries and certain taxpayers become astute to the requirements of the regulations and ensure that they are ready and able to comply with the new reporting obligations.
The regulations will implement a mandatory disclosure regime which is closely aligned with the Organisation for Economic Cooperation and Development's (OECD's) Mandatory Disclosure Rules of Common Reporting Standard (CRS) Avoidance Arrangements and Opaque Offshore Structures (MDRs). Considered to be the international standard for mandatory disclosure rules, the MDRs reflect the OECD's wider strategy of monitoring and acting on attempts to avoid the CRS. The regulations do not follow the EU model enacted as EU Directive 2011/16/EU on administrative cooperation (DAC 6). This corresponds with the UK government's approach; the United Kingdom has transitioned away from DAC 6 and will instead adopt the MDRs within the next year. The regulations will fulfil the political commitment given by the Jersey government to the EU Code of Conduct in July 2018 to implement a new mandatory disclosure regime.
Two types of structure must be disclosed to the comptroller (each a 'reportable arrangement' and together the 'reportable arrangements'):
The latter comprises a two-part definition:
Although compliance with the substance requirements set out in the Taxation (Companies – Economic Substance) (Jersey) Law 2019 may assist in demonstrating compliance with the first limb, it is not conclusive and a case-by-case analysis should nonetheless be undertaken as to whether a company is a passive offshore vehicle for the purposes of the regulations.
A structure will not be considered a passive offshore vehicle merely because it is owned by one or more institutional investors or because all beneficial owners are resident for tax purposes in the same jurisdiction as where the structure is incorporated.
When considering whether beneficial ownership has been obscured, the comptroller will review a number of factors, including:
The responsibility to report is predominantly placed on intermediaries. This includes promoters who are responsible for the design or marketing of either a CRS avoidance arrangement or an opaque offshore structure.
Importantly, service providers are also included within the scope of the regulations. Intermediaries who provide services relating to the design, marketing, implementation or organisation of a relevant structure or arrangement will be required to report where it is considered that they can reasonably be expected to know that the arrangement is a reportable arrangement.
In some instances, such as where an intermediary is not subject to the mandatory disclosure requirements, taxpayers may also be obliged to disclose reportable arrangements.
However, disclosure may not be required where the information is protected by legal professional privilege or if an intermediary is aware that the information has been previously disclosed in Jersey or a partner jurisdiction.
A report to the comptroller by an intermediary or taxpayer must be made within 30 days of the implementation of the reportable arrangement or the supply of services in connection with the arrangement.
The following details must be included in the report:
Promoters of CRS avoidance arrangements that were implemented after 29 October 2014 with a value above £600,000 will be required to disclose within six months of the regulations coming into force, regardless of whether that promoter is still actively promoting the reportable arrangement. Intermediaries who are deemed to be service providers under the regulations will not be required to report retrospectively.
Intermediaries and taxpayers who fail to report or knowingly provide inaccurate information to the comptroller may be liable for penalties of up to £3,000. The regulations also stipulate criminal penalties, including imprisonment, for obstructing an authorised person from entering a business for the purposes of investigating suspected contraventions of the regulations and for altering, suppressing or destroying certain business documents identified in a notice under the regulations.
Prior to the regulations being brought into effect, intermediaries should seek to adapt their systems and policies to be able to identify reportable arrangements. Where an intermediary identifies as a promoter, they should consider reviewing historic arrangements to ensure that they do not fall foul of the retrospective reporting requirement. Supplementary guidance from the comptroller which provides further guidance on the important 'reasonable to conclude' decision that industry will need to make when deciding whether to report specific arrangements and structures is expected. It will be important to monitor any such guidance and developments in the legislation so that businesses are ready and able to comply with the regulations once effective, especially in light of the short 30-day disclosure window.
For further information on this topic please contact Niamh Lalor or Matthew Shaxson at Ogier by telephone (+44 1534 514 000) or email (email@example.com or firstname.lastname@example.org). The Ogier website can be accessed at www.ogier.com.
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