The Minister for External Relations, Senator Ian Gorst (pictured), has lodged a draft Taxation Companies Economic Substance Law for debate by the States Assembly on 4 December.
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.
In December 2017, Jersey was identified as a cooperative jurisdiction by the Code Group. This finding followed an intensive year-long screening process where the tax structures of more than 90 global jurisdictions were subject to detailed analysis.
However, the Code Group identified possible concerns about the absence of legal requirements to ensure adequate economic substance in the Island.
Jersey’s government made a number of commitments to address these concerns, which relate to the possibility that profits from relevant activities are registered in Jersey without adequate economic activity taking place in the island.
Since then, government has been working across departments, with the Jersey Financial Services Commission and the financial services industry, to develop a package of measures that would satisfy EU concerns on economic substance.
Consultation feedback
In August 2018, the government issued a consultation, which summarised Jersey’s outline proposals and sought feedback from interested parties.
There were 35 responses from corporate groups, individuals, and industry groups. The consultation responses show that the financial services industry believes that good corporate governance in Jersey, and high professional standards, mean that most companies within the scope of the draft law will readily be able to demonstrate that they meet the requirements.
The legislation takes account of the responses to the consultation and has been developed in close consultation with industry representatives and with the governments of the Crown Dependencies, which will be tabling similar proposals.
Before the debate on the draft law, the Comptroller of Taxes will also release details of the guidance notes to explain how the legislation would operate in practice. In order to provide as much certainty to industry as possible, the government will publish that guidance no later than Monday 5 November 2018.
Senator Ian Gorst commented: “I am delighted that Jersey is the first jurisdiction to lodge new legislation to meet the concerns on economic substance expressed by the EU Code of Conduct Group on Business Taxation.
“As well as meeting the commitment made in 2017, the lodging of this legislation demonstrates Jersey’s well-deserved reputation as a jurisdiction of substance that is committed to the development of new international standards in fair taxation and to the maintenance of a good neighbour policy with the EU.”
Jersey Finance response
Geoff Cook, CEO Jersey Finance, commented: “This is a positive step forward that demonstrates Jersey is both willing and able to meet the criteria around economic substance as laid out by the EU’s Code of Conduct Group.
"It’s particularly pleasing that the feedback we and others in industry provided throughout the consultation process has been listened to. With that in mind, and given the high professional standards and commitment to good corporate governance here, we are confident that most companies within the scope of the draft law will readily be able to demonstrate that they meet the requirements.
“We are looking forward to seeing further guidance notes, which we expect to be published by Jersey’s government by 5 November, which will set out in more detail how the legislation will work in practice.”