Economic substance legislation in the Crown Dependencies and Overseas Territories—summary
Economic substance legislation in the Crown Dependencies and Overseas Territories—summary

The following Private Client guidance note provides comprehensive and up to date legal information covering:

  • Economic substance legislation in the Crown Dependencies and Overseas Territories—summary
  • Background
  • Main legislative principles
  • Core income generating activities
  • High-risk intellectual property companies
  • Economic substance tests
  • Residence
  • Consequences of non-compliance
  • Additional resources

The Crown Dependencies of Jersey, Guernsey and the Isle of Man, and the Overseas Territories of Bermuda, Cayman Islands and British Virgin Islands, have all introduced new legislative economic substance requirements for companies and other entities with a presence in their respective jurisdictions.

The legislation is effective for accounting periods commencing on or after 1 January 2019.

Background

In 2016, the EU Council committed to co-ordinated policy efforts in the fight against tax fraud, evasion and avoidance and adopted the ‘conclusions on criteria and process leading to the establishment of the EU list of non-cooperative jurisdictions for tax purposes’.

Consequently, the EU Code of Conduct Group (Business Taxation) (COCG) were instructed by the EU Council to undertake a screening process whereby jurisdictions, including the Crown Dependencies, were assessed against three standards in respect of:

  1. tax transparency

  2. fair taxation, and

  3. compliance with anti-base erosion and profit shifting (BEPS) measures

In December 2017, the COCG issued a list of non-cooperative tax jurisdictions. Most countries were keen to avoid this potential ‘blacklisting’ and therefore undertook to change the potentially harmful characteristics of their tax regimes that had been identified by the COCG, in accordance with the COCG's guidelines and timetable. Where such an undertaking was given, the jurisdiction was deemed to be provisionally co-operative and was effectively held on an interim ‘grey list’.

The COCG's analysis is