By Rob Venticinque, Senior Manager - Client Services
Most of us in industry will be familiar with the substance requirements under the Taxation (Companies - Economic Substance) (Jersey) Law 2019 that came into force on 1 January 2019, namely being that all Jersey resident companies will have to identify whether they carry on ‘relevant activities’. The term has been derived from categories of geographically mobile income identified by the OECD forum on harmful tax practices and include:
- Fund Management
- Holding company
- Distribution and service centre
- Finance and leasing
- Intellectual Property
As such you will be aware of the high level principles which companies must meet to demonstrate they have substance on the Island, namely:
- Companies must be directed and managed in Jersey; this requires meetings of the board of directors with the quorum of the board to be physically present in Jersey at these meetings. It is not necessary for all of the company's meetings to be held in Jersey but it is expected that the majority of board meetings will be held on the Island
- Companies must demonstrate adequate activity in Jersey; have an adequate number of employees physically present in Jersey; demonstrate adequate expenditure in Jersey, and have access to premises in Jersey
- Companies must also conduct Core Income Generating Activities in Jersey
With travel being problematic and certain individuals being caught out abroad or having to return ‘home’ and not being able to travel back and forth easily, how do you ensure management and control is maintained in Jersey?
Where a company’s operating practices have had to be adjusted to compensate for the COVID-19 outbreak, the Jersey Income Tax Controller has confirmed it will not determine under Article 6, Taxation (Companies - Economic Substance) (Jersey) Law 2019, that the company has failed the economic substance test.
Where a company incorporated in another jurisdiction has been tax resident on the basis of control and management in Jersey, and the Controller considers that any changes dictated by COVID-19 are temporary, this will not disturb the determination of corporate tax residence from that prevailing before this outbreak.
This treatment will only apply to adjustments to the normal operating practices, and to the extent required to mitigate the threats from this outbreak.
That said, companies still need to ensure that all meetings continue to be held in accordance with the company’s constitutional documents. As such, subject to the company’s articles allowing it, meetings can be held virtually or by phone. In these instances, the Chairperson of the meeting must be physically in Jersey, in addition to the majority of the board in attendance. If it is not possible for a majority to be in Jersey, the ‘absent’ individual can appoint an Alternate (located in Jersey) to attend the meeting and vote.
It is also imperative that the reason for a change to the normal operating practices is properly documented and noted in the meeting minutes. If you are in doubt whether you can meet the requirements or the company’s constitutional documents need amending, contact Equiom for guidance.
This article has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The article cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact Equiom to discuss these matters in the context of your particular circumstance. Equiom Group, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this article or for any decision based on it.