Companies should not wait until further guidance notes are issued to take action, delegates were advised at EY’s recent Economic Substance seminar.
Over 200 delegates attended the seminar, which was presented by EY’s Partner and Head of Tax in the Channel Islands, Wendy Martin. She highlighted that a lot can and should be done ahead of the guidance notes being issued by the States of Jersey as the law will be effective for some businesses from 1 January 2019.
“Although we are still waiting for the guidance notes to be published, work can be undertaken now to scope out the potential impact. It is important not to be complacent, as the consequences of getting this wrong could be costly; both financially and, in the cases of persistent non-compliance, can result in being struck off the register,” warned Mrs Martin.
To ascertain the additional work required, delegates were advised to identify what companies are potentially in scope and undertake a gap analysis to determine whether they are likely to meet the requirements outlined in the current legislation or whether changes will be needed.
“For companies undertaking relevant activities, do not assume that the nature and number of board meetings which have previously taken place and the minutes documented will be sufficient to evidence economic substance under the new requirements. Given that companies will have to make a formal declaration that they comply with the law, each in-scope company will have to go through certain processes to enable it to make that declaration,” said Mrs Martin.
Mrs Martin was joined by representatives from the States of Jersey, Paul Eastwood, Deputy Comptroller of Taxes and Tom Le Feuvre, Director – Global Markets and International Agreements, who have been involved with the negotiations for the proposals with the EU Commission and Code of Conduct Group.
They gave a technical update on the three key steps involved in meeting the EU’s economic substance criteria; identifying the relevant activities, imposing substance requirements; and ensuring there are enforcement provisions in place, and the implications of these on businesses.
They also stressed the importance of Jersey working alongside the other Crown Dependencies to issue joint guidance to ensure the implementation of the law is the same, as far as possible. This has been reflected in the joint “Key Aspects” document published by the three Crown Dependencies.
Mr Eastwood and Mr Le Feuvre also explained that the 2018 tax returns will be amended to require businesses to disclose their activity, with alignment to the relevant activities in the law. Mrs Martin further explained that in future more disclosure will be required on tax returns, increasing the risk and burden to companies and businesses should start thinking about how they will deal with this.
“If a company is undertaking relevant activities, then further information will need to be disclosed, which will make the tax returns more complex, placing an increased risk and resource burden on your business. To minimise the risk, you will need to ensure your internal processes are robust and adequate training is provided to your staff to ensure the returns are completed correctly. We have already seen a number of businesses outsourcing their returns to minimise the burden on their business.”
The legislation has now been approved by the States of Jersey and the substance requirements will be effective from 1 January 2019.
“For those who are yet to conduct an impact assessment on their portfolios, now is the time to act and carry out the analysis, or seek help to ensure they are ready,” Mrs Martin concluded.