The Channel Islands have recently brought in new economic substance laws that meet requirements set out by the EU’s Code of Conduct Group (Business Taxation) (COCG). As practitioners evaluate how they and their clients can best comply with the new legislation, Alison Parry (pictured), Head of Private Wealth for Intertrust in Guernsey, examines what the new laws mean for the private wealth sector in particular
The substance laws that have come into force in each island represent significant pieces of legislation that will require certain tax-resident companies to meet a series of economic substance tests to prove their compliance. This could involve changes in how those companies operate.
For private wealth practitioners concerned with the management and administration of wealth holding structures, family investment companies, equity holding companies and corporate clients, there is work to be done to identify which entities fall under the new laws and how to comply.
The laws and what to do next
Under the new laws, which came into force from 1 January 2019, tax-resident companies will need to satisfy an economic substance test of three parts. Companies must: be directed and managed in Guernsey or Jersey; conduct Core Income Generating Activity (CIGA) there; and meet requirements with regard to the levels of personnel, physical presence and operating expenditure in the islands. Failure to comply could result in significant fines and, potentially, strike-off.
The first thing for private wealth practitioners to do is to determine which of their Channel Island tax-resident companies could be affected. Proactive and informed service providers will already be talking to clients to explain the changes and to guide them through initial impact assessments.
As a listed company with a long-established presence and more than 500 experts across the two islands, Intertrust has developed its existing proposition to help clients meet the new requirements. Our teams are already in discussions with clients and their advisers.
Boards have to respond appropriately and quickly to the new laws so, in order to help them do this, Intertrust has developed a ‘substance compliance checker’ tool to make the initial assessment as easy as possible.
Intertrust will do this initial work automatically for companies on which it holds a board position, and will offer this service to all clients if requested.
Options for clients
Intertrust works with a wide variety of private wealth and corporate clients and relevant activities (as detailed in the legislation) that may necessitate action in order to comply with the new laws.
Another element of the new laws relates to tax returns and the need to make an annual declaration of compliance. This is something all clients need to be aware of.
The outcomes of the assessments will likely result in a range of possibilities to discuss with clients and their advisers. This could be a time-consuming exercise, certainly for the more complex structures, so practitioners are encouraged to speak to their clients as soon as possible.
In the current wealth management environment, practitioners are increasingly dealing with global clients with multi-jurisdictional assets and concerns. These structures are, by their nature, especially complex, so our Channel Islands teams have been working with their colleagues around the world to ensure compliance at a global level.
Our global expertise, combined with our significant Channel Islands presence, means Intertrust can leverage best practices. This includes the provision of high-quality directors and governance solutions, which sit alongside our established corporate administration services.
At the time of writing, the guidance for the new laws had just been issued.
It may seem like a daunting task to assess a client, run through the options and then determine the next steps to take. However, in our experience, companies in the Channel Islands have consistently paid close attention to substance requirements through management and control processes, and this new legislation codifies existing practice.
A competitive advantage
The substance laws have been welcomed by local practitioners and industry as they represent modern, compliant jurisdictions that produce high-quality work. In a world that is characterised by increased regulation and compliance, clients are turning to proven quality and established reputation and the Channel Islands continue to be beacons of exemplary practice.
The substance laws not only enable the islands to continue to meet international transparency standards, but mean they stand out as having a thorough approach to compliance and transparency.
Information correct as of 1 May 2019. The legal requirement to undertake the test of compliance remains with the entity being reviewed and not Intertrust. For disclaimer and legal messages, please visit the Intertrust Group website at intertrustgroup.com/legalnotice
For more information, contact Alison Parry, Head of Private Wealth Guernsey, Intertrust
Tel: +44 1481 211258
Email: alison.parry@intertrustgroup.com
• This advertising feature was first published in the May/June edition of Businesslife magazine