When is a tax resident not a tax resident?

Wednesday 08 August 2018

States officials in Jersey are looking for views on their plans for what companies need to do in order to claim tax residency in the island.

They have published proposals as part of a consultation, which they say would allow the island to meet the commitments made in 2017 to the EU Code of Conduct Group on Business Taxation.

Described as "high-level" proposals, the States say they would allow the Tax Department to identify companies carrying out “relevant activities” – including banking, insurance and fund management – and impose substance requirements on them, which may include having physical offices and employees based in Jersey. Those requirements could then be enforced through a series of measures including fines and, ultimately, striking a company from the register.

Senator Ian Gorst, Minister for External Relations, who has responsibility for financial services, commented:

“The consultation on these proposals represents the latest step in the evolution of the Island’s international tax policy – and maintains our longstanding commitment to tax neutrality, transparency and that regulated financial institutions have a real physical presence in the Island. We strongly welcome input from industry practitioners and members of the public on these proposals.”

"A way to achieve this could be through the imposition of substance requirements, where appropriate,” EU finance officials wrote last year in a letter to Jersey, and several other low-tax jurisdictions deemed to be in need of improvement. 

 In a 54-page report published in June, the EU Code of Conduct Group for Business Taxation outlined what they wanted to see.

According to the guidance, not only should businesses prove that they are undertaking research and development, marketing and branding activities, but should also be able to provide:

• “Detailed business plans which allow to clearly ascertain the commercial rationale of holding IP assets in the jurisdiction, 

• Employee information including level of experience, type of contracts, qualifications, duration of employment, 

• Concrete evidence that decision making is taking place within the jurisdiction. “

Such information, they explained, would help “prove that in the jurisdiction there is more than local staff passively holding intangible assets whose creation and exploitation is a function of decisions made and activities performed outside of the jurisdiction” and instead show that decisions were being made actively and regularly by “local, permanent and qualified staff.” 

The consultation documents can be found here.