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Consultation on substance requirements for tax-resident companies

Consultation on substance requirements for tax-resident companies

Tuesday 07 August 2018

Consultation on substance requirements for tax-resident companies

Tuesday 07 August 2018

A States-led consultation began yesterday, asking businesses for their views on proposals to introduce legislation that will require companies tax-resident in Guernsey, undertaking specific income generating activities, to demonstrate they have sufficient substance in the island.

The proposed new requirements follow the screening of a large number of non-EU jurisdictions undertaken by the European Commission Code of Conduct Group in 2017. It assessed standards of tax transparency, fair taxation and compliance with measures to prevent base erosion and profit shifting.

Guernsey and the other Crown Dependencies were re-affirmed as co-operative jurisdictions in December 2017, but the European Commission highlighted concerns about the ability of the Crown Dependencies to demonstrate that companies tax resident in their jurisdictions operated with sufficient substance to justify access to the islands’ corporate tax regimes. 

The Crown Dependencies then made a commitment in November 2017 to the European Commission to address these concerns.

The three jurisdictions have worked closely together to develop proposals that will meet this commitment by 31 December 2018. They will require companies that are tax resident in Guernsey, and engaged in key activities identified by the EU, to demonstrate that they meet minimum substance requirements as part of their annual tax return.

The key activities identified by the European Commission Code of Conduct Group are:

  • Banking
  • Insurance
  • Fund management
  • Financing and leasing 
  • Shipping
  • Intellectual property
  • Collective investment vehicles
  • Holding companies that generate income from any of these key activities

The substance requirements vary for each key activity to reflect the different needs of the companies involved. They are designed to be fair and proportionate while ensuring that there are sufficient activities undertaken in Guernsey to reflect the amount of profits accounted here.

Lyndon Trott, Vice-President of the Policy and Resources Committee, said: "This area of work is important to demonstrating our continued commitment to maintaining Guernsey’s reputation as a well-regulated, transparent and co-operative jurisdiction. We have worked very closely with our colleagues in Jersey and the Isle of Man to develop these proposals to ensure they meet both the needs of local industry and our commitment to the European Union. 

"When we talk about substance we are referring to real people, making real decisions in real time. These proposals establish that point unequivocally. They are a reasonable and proportionate response to the concerns raised by the Code of Conduct Group for Business Taxation. 

"I would encourage companies engaged in any of the core income generating activities to participate in the consultation."

The consultation runs from yesterday [6 August] until 31 August 2018 and can be completed by visiting

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