Jersey Lodges Draft Law On Economic ‘Substance’ Measures To Avoid EU Black List

; posted on
October 25th, 2018

According to a government announcement on 23 October 2018, Minister for External Relations Ian Gorst lodged a draft economic substance law for debate by Jersey’s States Assembly. The Law has been designed to address concerns of the EU Code of Conduct Group on Business Taxation about the need for relevant businesses to demonstrate adequate economic substance in the Island.

Types of Business Activities

The government decided to impose substance requirements on companies undertaking relevant activities including banking business, insurance business, fund management business, finance and leasing business, headquarters business, shipping business, holding company business, intellectual property holding business; distribution and service center business.

The relevant activities mentioned previously, need to demonstrate that the core income generation activities associated are undertaken in Jersey (either by the company or a third party).

Economic Substance Test

A resident company will satisfy the economic substance test if

  • the company is directed and managed in Jersey in relation to that activity;
  • there are “adequate” number of employees, expenditure, and physical assets regarding the level of relevant activity carried on in Jersey;
  • the company conducts Jersey core-income generating activity; and
  • in the case of Jersey core-income generating activity carried out for the relevant company by another entity, it is able to able to monitor and control the carrying out of that activity by the other entity.

The Comptroller may issue guidance on how the economic substance test may be met, including without prejudice to the generality of the foregoing, any expression used in this Article for the purpose of that test, including the meaning of “adequate”.

Enforcement of the Substance Requirements

In order to demonstrate meaningful enforcement of any proposed substance requirements, the draft law regulates a formal hierarchy of sanctions for non-compliant companies that fail to meet the substance test and to provide accurate information.

Sources: Jersey Government , States of Jersey - Draft Taxation Law 201


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