Under the Taxation (Companies – Economic Substance) (Jersey) Law 2019 and the Income Tax (Substance Requirements) (Implementation) (Guernsey) Amendment Ordinance 2018 and the Income Tax (Substance Requirements) (Implementation) Regulations 2018, Jersey and Guernsey tax resident companies which derive income from certain "relevant activities" (including holding company business, finance and leasing business and fund management business) are subject to requirements designed to ensure that those companies have a level of substance in the relevant Island which is commensurate with their economic activities.
Directed and managed test
The requirements include the "directed and managed" test which provides, among other things, that meetings of the board of directors of such companies must be held in the relevant Island at adequate frequencies, that a quorum of the board of directors must be physically present in Jersey or Guernsey, as applicable, at those meetings and, where a meeting is called to consider a strategic matter, or a matter relating to the companies' core income generating activities, a majority of directors must be physically present in Jersey or Guernsey.
There has been concern, in light of the restrictions on travel as well as the need for individuals to self-isolate as a result of the COVID-19 pandemic, that it will not be possible or practical for some companies to comply with the directed and managed test for as long as the situation persists. In response to this concern, the Comptroller of Revenue in Jersey and the Director of the Revenue Service in Guernsey have issued guidance to reassure companies that they will not be determined to fail the economic substance test where they have to adjust their normal operating practices temporarily, for example, by holding board meetings virtually rather than physically in Jersey or Guernsey.
Whilst this is a practical solution for many companies, we would advise that companies should:
- continue to ensure that board meetings are properly convened and held;
- maintain and retain relevant records to demonstrate the reasons why the company was prohibited from complying with the requirements of the directed and managed test;
- consider the appointment of alternate directors who are resident in the relevant Island and who will be available in the event that individual directors are unavailable or temporarily incapacitated; and
- If the company conducts a regulated activity, advise the Jersey Financial Services Commission or the Guernsey Financial Services Commission, as appropriate, in the event that any matter arises which requires the company to notify, or seek any regulatory approvals from, the relevant regulator.
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