The Economic Substance Requirements

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In order to address concerns raised by the EU Code of Conduct Group, a number of jurisdictions have recently taken steps to meet the European Union’s tax good governance principles by introducing “substance” rules for companies that are resident, and carrying on certain activities, in their jurisdictions. Any companies in these jurisdictions should take urgent steps to ensure they are compliant.

In Depth

As part of its remit, the EU Code of Conduct Group undertook a review of a number of jurisdictions’ tax policies. The review identified concerns with the lack of statutory “substance” requirements in the British Virgin Islands (BVI), Cayman Islands, Bermuda, Jersey, Guernsey, and the Isle of Man, which were thought to increase the risk of profits attributed to companies in those jurisdictions not reflecting the activities carried on there.

To alleviate these concerns, new legislation became law in the various jurisdictions from 1 January 2019. There are some incongruities between the rules as applied in the jurisdictions, and some differences in implementation periods and readiness.

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