Taxation
(Companies – Economic Substance) (Jersey) Law 2019
A LAW to make provision for imposing
an economic substance test on Jersey resident companies and for determining
whether the test is met by assessing the extent of certain relevant activities
carried out by such companies and taking appropriate enforcement action.
Adopted by the
States 6th December 2018
Sanctioned by
Order of Her Majesty in Council 13th March 2019
Registered by the
Royal Court 22nd
March 2019
THE STATES, subject to the sanction of Her Most Excellent Majesty in Council, have
adopted the following Law –
1 Interpretation
In this Law –
“1961 Law” means the Income Tax (Jersey) Law 1961[1];
“authorized person”
means the Comptroller or any person authorized by the Comptroller to perform
functions under Article 17;
“banking business” means, in respect of a resident company,
a deposit taking business which the resident company must be registered to
carry on under Article 9 of the Banking Business (Jersey) Law 1991[2];
“business document”
means any document –
(a) that
relates to the carrying on of a business, trade, profession or vocation by any
person; and
(b) that
forms part of any record under any enactment;
“business premises”
means premises used in connection with the carrying on of a business, trade,
profession or vocation;
“Commission” means a
Commission of Appeal constituted under Article 13(3);
“competent authority”, in respect of a country or
territory other than Jersey, means the authority designated in or for the
purposes of an approved agreement or an approved obligation within the meaning
of the Taxation (Implementation) (Jersey) Law 2004[3];
“Comptroller” means the Comptroller of Taxes;
“connected person” in relation to a resident company, has
the same meaning as in Article 3A of the Income Tax (Jersey) Law 1961[4];
“deposit-taking business” has the meaning in Article 3
of the Banking Business (Jersey) Law 1991[5];
“distribution and service centre business” means the
business of either or both of the following –
(a) purchasing
from foreign connected persons –
(i) component parts
or materials for goods, or
(ii) goods ready for
sale; and
reselling
such component parts, materials or goods;
(b) providing
services to foreign connected persons in connection with the business,
but does not include any activity included in any other relevant
activity except holding company business;
“finance and leasing business” has the meaning given by Article 2;
“financial period” has the same meaning as in Article 4A
of the 1961 Law;
“foreign connected person” means a person connected with
a resident company, such person not being resident or regarded as resident in Jersey;
“fund management business” means –
(a) the
business of being a functionary who –
(i) is required to
hold a permit under the Collective Investment Funds (Jersey) Law 1988[6] to carry on that business,
and
(ii) is a manager or
an investment manager as referred to in Group 2 in Part 2 of the
Schedule to that Law; or
(b) the
business of a person who is required to be registered under the Financial
Services (Jersey) Law 1998[7] to carry on fund services business
and is any of the following –
(i) a manager or
investment manager as referred to in Article 2(10)(a) of that Law,
(ii) a trustee as
referred to in Article 2(10)(c) of that Law, except where a separate
manager has been appointed to the unclassified fund or unregulated fund,
(iii) a member of a
partnership as referred to in Article 2(10)(d) of that Law, except where a
separate manager has been appointed to the unclassified fund or unregulated
fund;
(c) a
person carrying on a business by virtue of which the activities of a company
are excluded from fund services business under the Financial Services (Jersey)
Law 1998 by virtue of Article 3 and paragraph 21 of
Schedule 2 to that Law;
(d) the
business of being a person who is the equivalent of a person referred to in paragraph (b)
or (c) in respect of a fund which would be a scheme falling within the
definition of “collective investment fund” in Article 3 of the
Collective
Investment Funds (Jersey) Law 1988[8] except that the offer of
units in the scheme or arrangement is not an offer to the public within the
meaning of that Article;
“headquarters business” means the business of providing
any of the following services to one or more foreign connected persons of the
resident company –
(a) the
provision of senior management;
(b) the
assumption or control of material risk for activities carried out by, or assets
owned by, any of those connected persons;
(c) the
provision of substantive advice in connection with the assumption or control of
risk referred to in paragraph (b),
but does not include anything falling within the definition of
financing and leasing business, intellectual property holding business,
insurance business, or banking business;
“high risk IP company” is a company which carries on an
intellectual property holding business and –
(a) the
company –
(i) did not create
the intellectual property in an intellectual property asset which it holds for
the purposes of its business,
(ii) acquired the
intellectual property asset –
(A) from a
connected person, or
(B) in
consideration for funding research and development by another person situated
in a country or territory other than Jersey; and
(iii) licences the
intellectual property asset to one or more connected persons or otherwise
generates income from the asset in consequence of activities (such as
facilitating sale agreements) performed by foreign connected persons; or
(b) the
company does not carry out research and development, branding or distribution
as part of its Jersey core-income generating activities;
“holding body” has the same meaning as in Article 2
of the Companies (Jersey) Law 1991[9];
“holding company” means a resident company which –
(a) is
a holding body;
(b) has
as its primary function the acquisition and holding of shares or equitable
interests in other companies; and
(c) does
not carry on any commercial activity;
“holding company business” means the business of being a
holding company;
“income” in respect of an intellectual property asset includes –
(a) royalties;
(b) income
from a franchise agreement; and
(c) income
from licensing the intangible asset;
“insurance business” means, in respect of a resident
company, long-term business or general business within the meaning of Article 1
of the Insurance Business (Jersey) Law 1996[10] which the resident company
must be authorized to carry on by a category A permit or category B
permit under that Law;
“intellectual property holding business” means the
business of holding intellectual property assets;
“intellectual property asset” means any intellectual
property right in intangible assets, including but not limited to copyright,
patents, trade marks, brand, and technical know-how, from which identifiable income
accrues to the business (such income being separately identifiable from any
income generated from any tangible asset in which the right subsists);
“Jersey core income-generating activity” has the meaning
given by Article 4;
“Minister” means the Minister for Treasury and
Resources;
“registrar of companies” or “registrar” has
the same meaning as in Article 1 of the Companies (Jersey) Law 1991[11];
“relevant activities” has the meaning given in Article 3;
“resident company” means a company regarded as resident
in Jersey under Article 123 of the 1961 Law;
“ship” has the same meaning as in Article 1 of the
Shipping (Jersey) Law 2002[12] but does not include –
(a) a
fishing vessel (as defined by that Article);
(b) a ship
to the extent that it is used as a pleasure vessel (as defined by Article 169(6)
of that Law); or
(c) a
small ship (within the meaning of Article 1 of that Law);
“shipping business” means any of the following activities
involving the operation of a ship anywhere in the world other than solely
between Jersey and Guernsey or within the territorial waters of Jersey –
(a) the
business of transporting, by sea, persons, animals, goods or mail;
(b) the
renting or chartering of ships for the purpose described in paragraph (a);
(c) the
sale of travel tickets or equivalent, and ancillary services connected with the
operation of a ship;
(d) the
use, maintenance or rental of containers, including trailers and other vehicles
or equipment for the transport of containers, used for the transport of anything
by sea;
(e) the
management of the crew of a ship.
2 Meaning
of “finance and leasing business”
(1) In
this Law “finance and leasing business” means the business of providing
credit facilities of any kind for consideration.
(2) For
the purposes of paragraph (1) but without limiting the generality of that
paragraph –
(a) consideration
may include consideration by way of interest;
(b) the
provision of credit may be by way of instalments for which a separate charge is
made and disclosed to the customer in connection with –
(i) the supply of
goods by hire purchase,
(ii) leasing other
than any lease granting an exclusive right to occupy land, or
(iii) conditional sale or
credit sale.
(3) Where
an advance or credit repayable by a customer to a person is assigned to another
person, that other person is deemed to be providing the credit facility for the
purposes of paragraph (1).
(4) Any
activity falling within the definition of “banking business”,
“fund management business” or “insurance business” is
excluded from the definition in paragraph (1).
3 Meaning
of relevant activities
(1) In
this Law “relevant activities” mean any of the following activities –
(a) banking
business;
(b) insurance
business;
(c) fund
management business
(d) finance
and leasing business
(e) headquarters
business;
(f) shipping
business;
(g) holding
company business;
(h) intellectual
property holding business;
(i) distribution
and service centre business.
(2) For
the purposes of paragraph (1)(a), banking business does not include
banking business carried on by a company which the Jersey Financial Services
Commission is satisfied is registered under the Banking Business (Jersey) Law 1991[13] solely for business
continuity and liable to pay a reduced annual fee accordingly under the
Commission’s published fees under Article 15 of the Financial
Services Commission (Jersey) Law 1998[14].
4 Meaning
of “Jersey core income-generating activities”
The expression “Jersey core income-generating activities”
means relevant activities being carried on from within Jersey and includes –
(a) in
respect of banking business –
(i) raising
funds, managing risk including credit, currency and interest risk,
(ii) taking
hedging positions,
(iii) providing
loans, credit or other financial services to customers,
(iv) managing
capital and preparing reports and returns to the Jersey Financial Services
Commission or any body or entity with equivalent functions relating to the
supervision or regulation of such business;
(b) in
respect of insurance business –
(i) predicting
and calculating risk,
(ii) insuring
or re-insuring against risk and providing insurance business services to
clients;
(c) in
respect of fund management business –
(i) taking
decisions on the holding and selling of investments,
(ii) calculating
risk and reserves,
(iii) taking
decisions on currency or interest fluctuations and hedging positions,
(iv) preparing
reports and returns to investors and the Jersey Financial Services Commission or
any body or entity with equivalent functions relating to the supervision or
regulation of such business;
(d) in
respect of finance and leasing business –
(i) agreeing
funding terms,
(ii) identifying
and acquiring assets to be leased (in the case of leasing),
(iii) setting
the terms and duration of any financing or leasing,
(iv) monitoring
and revising any agreements,
(v) managing
any risks;
(e) in
respect of headquarters business –
(i) taking
relevant management decisions,
(ii) incurring
expenditures on behalf of group entities,
(iii) co-ordinating
group activities;
(f) in
respect of shipping business –
(i) managing
crew (including hiring, paying and overseeing crew members),
(ii) overhauling
and maintaining ships,
(iii) overseeing
and tracking deliveries,
(iv) determining
what goods to order and when to deliver them, organising and overseeing
voyages;
(g) in
respect of holding company business, all activities related to that business;
(h) in
respect of intellectual property holding business –
(i) taking
strategic decisions and managing (as well as bearing) the principal risks
related to development and subsequent exploitation of the intangible asset
generating income,
(ii) taking
the strategic decisions and managing (as well as bearing) the principal risks
relating to acquisition by third parties and subsequent exploitation and
protection of the intangible asset,
(iii) carrying
on the underlying trading activities through which the intangible assets are exploited
leading to the generation of revenue from third parties,
(iv) research
and development, branding or distribution;
(i)
in respect of distribution and service centre business –
(i) transporting
and storing goods, components and materials,
(ii) managing
stocks,
(iii) taking
orders,
(iv) providing
consulting or other administrative services.
5 Requirement
to meet economic substance test
(1) Subject
to paragraph (8), a resident company must satisfy the economic substance
test in relation to any relevant activity carried on by it.
(2) A
resident company meets the economic substance test in relation to a relevant
activity if –
(a) the
company is directed and managed in Jersey in relation to that activity;
(b) having
regard to the level of relevant activity carried on in Jersey –
(i) there are an
adequate number of employees in relation to that activity who are physically
present in Jersey (whether or not employed by the resident company or by another
entity and whether on temporary or long-term contracts),
(ii) there is adequate
expenditure incurred in Jersey, and
(iii) there are adequate
physical assets in Jersey;
(c) the
company conducts Jersey core-income generating activity; and
(d) in
the case of Jersey core-income generating activity carried out for the relevant
company by another entity, it is able to monitor and control the carrying out
of that activity by the other entity.
(3) The
test in paragraph (2)(a) is satisfied if –
(a) the
company’s board of directors meets in Jersey at an adequate frequency
having regard to the amount of decision-making required at that level;
(b) at such
board meetings described in sub-paragraph (a), there is a quorum of
directors physically present in Jersey;
(c) the
minutes of such board meetings described in sub-paragraph (a) record the
making of strategic decisions of the company at the meeting;
(d) the
directors of the company have the necessary knowledge and expertise to
discharge the duties of the board; and
(e) the
minutes of all board meetings and the records of the company are kept in
Jersey.
(4) The
Comptroller may issue guidance on how the economic substance test may be met,
including without prejudice to the generality of the foregoing, any expression
used in this Article for the purpose of that test, including the meaning of
“adequate”.
(5) Regard
must be had to any guidance under paragraph (4) concerning the interpretation
of any expression.
(6) The
Comptroller may revise guidance issued under paragraph (4) from time to
time and a reference to guidance includes a reference to revised guidance.
(7) Guidance
issued under paragraph (4) must be published by the Comptroller in a
manner which the Comptroller considers will bring it to the attention of those
most likely to be affected by it.
(8) A
resident company is not required to meet the economic substance test if it has
no gross income in relation to a relevant activity carried on by it.
6 Assessment
of whether economic substance test is met
(1) The
Comptroller may determine that a resident company has not met the economic
substance test during any financial period of the company starting on or after
1st January 2019, provided that such determination is made no later
than 6 years after the end of the financial period to which the
determination relates.
(2) Paragraph (1)
does not apply if the Comptroller is not able to make a determination within
the 6 year period by reason of any deliberate misrepresentation or
negligent or fraudulent action by the resident company or by any other person.
(3) In
relation to a high risk IP company, for the purposes of paragraph (1) the
Comptroller must determine that the economic substance test is not met during a
financial period unless the company provides sufficient information to satisfy
the Comptroller that the test is met.
7 Requirement
to provide information
(1) A
resident company must provide any information reasonably required by the
Comptroller in order to assist the Comptroller in making a determination under Article 6.
(2) The
Comptroller may serve notice on any person requiring the person to provide,
within the period specified in the notice and at such place as is specified in
the notice, such documents and information as the Comptroller may reasonably require
for the purpose of facilitating the Comptroller’s exercise of functions
under this Law.
8 Exchange
of information to competent authorities
(1) Subject
to paragraph (2), if the Comptroller determines under Article 6 that
a resident company has not met the economic substance test for a financial
period, the Comptroller must provide the information provided under Article 7
relating to that company for that period to –
(a) the
competent authority of the country or territory in the European Union in which
resides –
(i) a holding body,
(ii) the ultimate
holding body of the resident company, and
(iii) an ultimate beneficial
owner; and
(b) if the
resident company is incorporated outside Jersey, the competent authority of the
country or territory in which the resident company is incorporated.
(2) In
respect of a high risk IP company, regardless of whether or not the Comptroller
has made a determination under Article 6 in respect of it, the Comptroller
must provide the information provided to the Comptroller under Article 7
in respect of that company for each financial period of the company starting on
or after 1st January 2019 to –
(a) the
competent authority of the country or territory in the European Union in which
resides –
(i) a holding body,
(ii) the ultimate
holding body of the resident company, and
(iii) an ultimate beneficial
owner; and
(b) if
the high risk IP company is incorporated outside Jersey, the competent
authority of the country or territory in which the company is incorporated.
9 Penalties
where the economic substance test is not met
(1) If
the Comptroller determines under Article 6 that a resident company has
failed to meet the economic substance test for a financial period, the
Comptroller must issue a notice to the company notifying it –
(a) that
the Comptroller has determined that the resident company does not meet the
economic substance test for that period;
(b) of the
reasons for that determination;
(c) of
the amount of penalty imposed on the company under paragraph (2);
(d) of the
date from which the penalty under paragraph (2) is due, being not less
than 28 days after the issue of the notice;
(e) of what
action the Comptroller considers should be taken by the company to meet the
economic substance test; and
(f) of
the company’s right of appeal under Article 12.
(2) The
amount of penalty referred to in paragraph (1)(c) is such amount as is
determined by the Comptroller subject to a maximum penalty of £10,000.
(3) If,
for the financial period following a financial period in which a notice was
issued under paragraph (1) (“further financial period”), the
Comptroller determines the resident company has failed to meet the economic
substance test, the Comptroller must issue a further notice to the resident
company notifying it –
(a) that
the Comptroller has determined that the resident company does not meet the
economic substance test for the further financial period;
(b) of
the reasons for the determination;
(c) of the
amount of penalty imposed on the company under paragraph (4) (in addition
to the penalty previously imposed under paragraph (1));
(d) of the
date from which the penalty under paragraph (4) is due, being not less
than 30 days after the issue of the notice;
(e) that
the Comptroller may make a report to the Minister under paragraph (5);
(f) of
what action the Comptroller considers should be taken by the company to meet the
economic substance test; and
(g) of
the company’s right of appeal under Article 12.
(4) The
amount of penalty referred to in paragraph (3)(c) is such amount as is
determined by the Comptroller subject to a maximum penalty of £100,000.
(5) Following
the issue of a notice under paragraph (3), the Comptroller may provide the
Minister with a report of the matters referred to in that notice together with
any additional information (whether or not provided to the Comptroller under Article 7).
10 Penalties for failure
to provide information or for inaccurate information
(1) A
person is liable to a penalty not exceeding £3,000 if the person fails to
provide information that the person is required to provide under Article 7.
(2) A
person is liable to a penalty not exceeding £3,000 if –
(a) in
complying with a requirement under Article 7 the person provides
inaccurate information; and
(b) condition
A or B is met.
(3) Condition A
is that the person knows of the inaccuracy at the time the information is
provided but does not inform the Comptroller at that time.
(4) Condition B
is that the person –
(a) discovers
the inaccuracy after the information is provided to the Comptroller; and
(b) fails
to take reasonable steps to inform the Comptroller.
(5) Liability
to a penalty under this Article does not arise if the person satisfies the
Comptroller or, (on an appeal under Article 12), the Commission, that
there is a reasonable excuse for the failure.
(6) If
a person had a reasonable excuse for a failure but the excuse has ceased, the
person is to be treated as having continued to have the excuse if the failure
is remedied without unreasonable delay after the excuse has ceased.
11 Imposition of
penalties for failure to provide information or for inaccurate information
(1) If
a person becomes liable to a penalty under Article 10 the Comptroller may determine
the amount of penalty and impose it on the person.
(2) If
the Comptroller imposes a penalty, the Comptroller must notify the person –
(a) of
the reasons for imposing the penalty;
(b) of
the amount of penalty imposed on the person;
(c) the
date from which the penalty is due, being not less than 28 days after the
issue of the notice; and
(d) of
the person’s right of appeal under Article 12.
(3) A
penalty under this Article may only be imposed within the period of
6 years beginning with the date on which the person became liable to the
penalty and, in the case of a person liable to a penalty under Article 10(2),
within the period of 12 months beginning with the date on which the
inaccuracy first came to the attention of the Comptroller.
12 Right
of appeal against penalty
A person upon whom a penalty is imposed by the Comptroller may –
(a) appeal
against it on the ground that liability to that penalty does not arise; and
(b) appeal
against its amount.
13 Commission of Appeal
and procedure on appeal against penalty
(1) Notice
of an appeal under Article 12 must be given to the Comptroller –
(a) in
writing; and
(b) before
the end of the period of 30 days beginning with the date on which
notification to the person under Article 9 or 11 was given.
(2) The
notice under paragraph (1) must state the ground of appeal.
(3) The
Comptroller shall notify the Commission of an appeal under Article 12.
(4) A
Commission of Appeal shall be constituted for the purpose of hearing an appeal
under Article 12 as it would be constituted from the Commissioners of
Appeal appointed under Article 10(1) of the 1961 Law for the purpose
of hearing appeals under the 1961 Law.
(5) On
an appeal under Article 12(a), the Commission may confirm or cancel the
penalty.
(6) On
an appeal under Article 12(b), the Commission may –
(a) confirm
the penalty; or
(b) substitute
another amount for the penalty which the Comptroller would have power to
impose.
(7) Subject
to this Article and Article 14, the provisions of Part 6 of the 1961 Law
shall have effect in relation to appeals under Article 12 as they have
effect in relation to an appeal against an assessment to income tax.
14 Enforcement
of penalties
(1) A
penalty under this Law must be paid before the end of the period of
30 days beginning with the date mentioned in paragraph (2).
(2) That
date is the later of –
(a) the
date from which the penalty is due under Article 9(1)(d), (3)(d) or 11(2)(c);
or
(b) if
notice of appeal under Article 12 is given, the date on which the appeal
is finally determined or withdrawn.
(3) A
penalty under this Law may be enforced as if it were income tax charged in an
assessment and due and payable.
15 Confidentiality
(1) The
Comptroller’s power to disclose information under Article 8 has
effect despite any obligation as to confidentiality or other restriction on the
disclosure of information imposed by statute, contract or otherwise.
(2) Disclosure
of information under this Law does not breach –
(a) any
obligation of confidentiality in relation to the information so disclosed; or
(b) any
other restriction on the access to or disclosure of the information so
accessed.
16 Power to enter
business premises and examine business documents
(1) An
authorized person may examine and take copies of any business document that is
located on business premises.
(2) The
power under paragraph (1) may be exercised only for the purpose of
investigating any issue relating to compliance with any provision of this Law.
(3) An
authorized person may at any reasonable hour enter business premises for the
purpose of exercising the power under paragraph (1).
(4) An
authorized person may by notice require any person to produce any specified
business document at the business premises where the business document is
located for the purpose of enabling the authorized person to exercise the power
under paragraph (1) in relation to that document.
17 Obstructing
an authorized person
(1) A
person is guilty of an offence if, without reasonable excuse, the person –
(a) obstructs
an authorized person in the exercise of the authorized person’s powers
under Article 16; or
(b) fails
to provide such reasonable assistance as an authorized person may require when
the authorized person is exercising his or her powers under Article 16.
(2) A
person who intentionally alters, suppresses or destroys any business document
that has been specified in a notice under Article 7(2) is guilty of an
offence.
(3) A
person who is guilty of an offence under paragraph (1) is liable to
imprisonment for a term of 6 months and to a fine.
(4) A
person who is guilty of an offence under paragraph (2) is liable to
imprisonment for a term of 2 years and to a fine.
18 Regulations
and consequential amendments
(1) The
States may by Regulations amend –
(a) any
of the definitions in Articles 1 to 4;
(b) Articles 9
to 14 (penalties).
(2) Regulations
under this Article may include such consequential, incidental, supplementary
and savings provisions as the States think necessary or expedient, including
provisions which amend any other enactment.
19 Companies
(Jersey) Law 1991 amended
In the Companies (Jersey) Law 1991 –
(a) after
Part 20 of the Companies (Jersey) Law 1991[15] there shall be inserted the
following Part –
“part 20a
Economic substance test
143A Power
for Minister for Treasury and Resources to apply to Court
If the Minister for Treasury
and Resources receives a report from the Comptroller of Taxes under Article 9(5)
of the Taxation (Companies – Economic Substance) (Jersey) Law 2019[16], that a company has not met
the economic substance test within the meaning of that Law, the Minister for
Treasury and Resources may apply to the court for an order under Article 143B.
(1) If, on receiving an application under Article 143A,
the court is satisfied that the company which is the subject of the report has
not met the economic substance test, the court may make such order as it thinks
fit requiring the company to take any action specified in the order for the
purpose of meeting the test, including, without prejudice to the generality of
the foregoing, any action described in Article 143(2).
(2) If, under paragraph (1), a court orders
a company to take any action described in Article 143(2), paragraphs (3)
to (5) of that Article shall apply, as if an order under paragraph (1)
were an order under that Article.”;
(b) In Article 155 –
(i) in
paragraph (2) after the words “the Minister” there is inserted
“or the Minister for Treasury and Resources following receipt of an Article 9(5)
report”,
(ii) in
paragraph (3) after the words “the Minister” there is inserted
“or by the Minister for Treasury and Resources following receipt of an Article 9(5)
report”,
(iii) after
paragraph (6) there is inserted –
“(7) In this Article “Article 9(5)
report” means a report to the Minister for Treasury and Resources under Article 9(5)
of the Taxation (Companies – Economic Substance) (Jersey) Law 2019[17].”.
20 Citation
and commencement
This Law may be cited as the Taxation (Companies –
Economic Substance) (Jersey) Law 2019 and comes into force on 1st January
2019.
l.-m. hart
Deputy Greffier of the States