Snapshot: covid-19 economic substance grant ends in Jersey – Commentary

Introduction
Why was the concession introduced?
Time and practicalities

Introduction

Companies with accounting periods beginning on or after November 1, 2022 will no longer benefit from the temporary grant of application of the economic substance requirements, provided in response to the covid-19 pandemic.

Introduced by the Jersey Comptroller of Revenue as a temporary measure, the Economic Substance Grant was introduced in March 2020 to help companies struggling to meet their obligations under the Tax (Businesses – Economic Substance) Act ( Jersey) 2019 (the Act) while covid-19 restrictions made compliance difficult. The concession also applied to Jersey tax resident partnerships that fell within the scope of the Act following its extension to partnerships in 2021 under the Taxation (Partnerships – Economic Substance) (Jersey) Act 2021.

Why was the concession introduced?

The Act requires that Jersey based companies that fall within its scope have their activities “directed and administered” from Jersey, and that certain “central income generating activities” (CIGAs) are also carried out out on the island. In many cases, directors would travel to Jersey to attend board meetings in person to meet these requirements. However, due to travel restrictions, social distancing and self-isolation requirements, these activities had to be carried out remotely, leading to the introduction of the concession.

When companies had to modify their practices due to covid-19, the concession meant that they would not fail to meet the economic substance test on the grounds that they had not adequately demonstrated that they were “directed and administered” in Jersey. Similarly, the comptroller assured companies incorporated elsewhere, which are considered tax resident in Jersey as a result of being managed and controlled on the island, that their residency would not be affected by temporary adjustments to their operation.

The grant was only related to meeting the “directed and administered” requirement of the Act. During the covid-19 pandemic, compliance with the other economic substance rules was required, including conducting CIGA from Jersey and maintaining of adequate employees, expenses and physical assets on the island.

Time and practicalities

The withdrawal of the grant will only apply to accounting periods beginning on or after November 1, 2022, while companies with accounting periods that began on an earlier date will still be able to benefit until the end of their current accounting period. This should give companies time to plan ahead and organize future Jersey board meetings, along with any other changes to their operations that may be necessary, in order to fully comply with the Act once again.

A company purporting to rely on the grant (with respect to an accounting period beginning before November 1, 2022) must:

  • maintain sufficient records to evidence changes that have been made to its normal operating practices and to provide evidence of the underlying reasons for these changes; Y
  • disclose that the allowance is based on your tax return.

For more information on this topic, please contact matthew shaxson, alex fisherman or Rory Coughlan at Ogier by phone (+44 1534 514 000) or email ([email protected], [email protected] either [email protected]). Ogier’s website can be accessed at ogier.com.

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