0299 AUR En Voyage Issue #18 Flickbook

The tests are designed
to prevent taxable income
being diverted to ‘nameplate’
companies, which are registered
in a jurisdiction but perform
little or no economic activities
there. The three criteria are:
1. The company is managed
and directed in Guernsey
2. The company’s core income
generating activities (CIGA)
are undertaken in Guernsey
3. The company maintains
adequate physical
premises, people and
expenditure in Guernsey
EASIER SAID THAN DONE
There may be some misplaced
complacency over the rules
as companies presume that
this substance is what they
already have and therefore
demonstrating this in the
redesigned tax return will be a
quick and painless exercise.
Unfortunately, filing is unlikely
to be straightforward. Companies
should speak to their advisors and
begin to collate the necessary
data and make preparations for
reporting now rather than the last
minute. For example, you know
that your company is managed
and directed here, but do you
have the records of board meeting
frequency, minutes of what was
discussed and who was there to
demonstrate this? Just having
a meeting isn’t enough, it must
also take the strategic decisions
governing the company’s future.
Similarly, your CIGA could
include outsourced activities as
well as in-house operations, as
long as the outsourcing is in the
island. Outsourced activities can
be included in your return. But you
need to be able to demonstrate
adequate supervision over them.
The resources of the service
provider may also be taken into
account, but that in turn is likely
to require a high level of clarity
in service level agreements
and co-ordination over filing.
CALLED TO ACCOUNT
Without this evidence in place,
you may find filing very difficult
or even fail an audit. Lack of
preparedness for a tax audit
will end up taking up more
management time than proactive
preparation. It’s therefore
important to look at what data
you need and how this can
be generated, along with the
necessary governance procedures
and agreements with outsourcers
needed to underpin this.
THE BIG PICTURE
The other big reason that
economic substance isn’t just
a tick-the-box compliance
exercise is that it isn’t a one-off.
Rather it’s part of a global push,
with a lot more related moves
coming up on the horizon.
Key developments include the
OECD’s roadmap for resolving
the 'tax challenges arising from
the digitalisation of the economy',
which despite the name would
apply to virtually every company
with international operations,
digital or otherwise. And with
proposals that include minimum
taxation and allocation of profits
according to fixed formulae, this
could severely disrupt intra-group
transfer pricing arrangements.
Our best recommendation would
therefore be to look at economic
substance as part of a big picture
that encompasses multiple
strands of tax reform. Are your
operating structures, including
where you pay tax, still viable?
How will economic substance
compliance in Guernsey and other
crown dependencies impact on
the transfer pricing arrangements
in your group as a whole?
With attention now, all
this can be managed. The
Government of Guernsey has
said that a clear demonstration
of the economic substance that
underpins businesses on the
island would enable Guernsey
to emerge stronger and more
competitively positioned 4 . But
everyone needs to comply first.
ADVERTORIAL
WE HELP CLIENTS SOLVE
IMPORTANT PROBLEMS
OUR ADVISORY TEAM ARE SPECIALISED IN THESE AREAS
Getting your technology strategy right
Unlocking the value of your data
Making your business cyber secure
Complying with changing regulation
Managing risks in your business
Having the right controls in place
Strategic changes to drive success
Project management support
Listing your business
Managing your back office
Liquidations
To find out how our Advisory team in Guernsey
can help you, contact alexandra.mcinnes@pwc.com
1
States of Guernsey media release, 23 July 2018 (https://www.gov.gg/article/166371/Guernsey-receives-top-marks-for-transparency-from-OECDs-Global-Forum
2
States of Guernsey media release, 25 July 2019 (https://www.gov.gg/article/172736/OECD-review-concludes-that-Guernseys-tax-regime-is-not-harmful)
3
‘Economic substance’, States of Guernsey (https://www.gov.gg/economicsubstance)
4
We are Guernsey, 29 April 2019 (https://www.weareguernsey.com/news/2019/guidance-on-guernseys-economic-substance-requirements-published/)
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