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2019 corporate tax return guidance notes: Section 7

Economic substance​

This section will only be presented to companies which are tax resident in Jersey.

Economic substance guidance for companies

The guidance includes:

  • key aspects in relation to economic substance requirements
  • economic substance requirements guidance
  • economic substance corporate return guidance
  • economic substance flow chart.

Taxation (Companies - Economic Substance) (Jersey) Law 2019

Activities: Economic substance stage 1

Question ES1: Are you part of a multi-national group?

For the purposes of this question a multi-national group means any group of two or more enterprises (including companies and partnerships) which are either resident for tax purposes in different jurisdictions, or which includes a single enterprise that is resident for tax purposes in one jurisdiction and carries on a business in another jurisdiction through a permanent establishment there.

If the company is part of a multi-national group, as defined above, you should answer yes.

If the company is not part of a multi-national group, as defined above, you should answer no.

Question ES2: What is the consolidated revenue for the group?

This question will only be presented is the answer to question ES1 is yes.

The consolidated revenue for the group is the total consolidated group revenue for the accounting period. You are required to select one of the options from the drop down box which reflect the consolidated revenue of the group or select not disclosed.

Question ES3: Do any financial periods in this return start after 31 December 2018?

If any of the financial periods of the company in this return start after 31 December 2018 you should answer yes.

If there are no financial periods in this return starting after 31 December 2018 you should answer no.

For example:

​Company P has one financial period which starts on 1 January 2019 and ends on 
31 December 2019.
​Analysis:
  1. The financial period ending 31 December 2019 is in the 2019 return, and
  2. The 1 January 2019 is after 31 December 2018
​Company P should answer yes to this question.
​Company Q has one financial period which starts on 1 February 2018 and ends on 31 January 2019.
​Analysis:
  1. The financial period ending 31 January 2019 is in the 2019 return, but
  2. The 1 February 2018 is on or before 31 December 2018
​Company Q should answer no to this question.
​Company R has two financial periods. Period 1 commences on 1 February 2018 and ends on 31 January 2019. Period 2 commences on 1 February 2019 and ends on 31 July 2019.
​Analysis:

Period 1
  1. The financial period ending 31 January 2019 is in the 2019 return, but
  2. The 1 February 2018 is on or before 31 December 2018
Period 2
  1. The financial period ending on 31 July 2019 is in the 2019 return, and
  2. The 1 February 2019 is after 31 December 2018
​By virtue of period 2 company R should answer yes to this question.
​Company S has one financial period which commences on 1 October 2018 and ends on 31 March 2020. 
​Analysis:
  1. The financial period ending 31 March 2020 is not in the 2019 return (it will be in the 2020 return), and
  2. The 1 October 2018 is on or before 31 December 2018
​Company S should answer no to this question.

Which of the following relevant activities did the company carry on?

If the company is carrying on relevant activities as set out in Article 3 of the Economic Substance Law you are required to tick the box in respect of each relevant activity.

If the company is not carrying on any of the relevant activities you are required to tick question ES3n none of the above.

Gross income from the relevant activities in the financial period

This question will only be presented if you have ticked a relevant activity and:

  1. The answer to question 2a in section 1, “Does the entity have an accounting date which ends in the year of assessment” is yes; and
  2. The answer to question ES3 in this section, “Do any financial periods in this return start after 31 December 2018” is yes.

If the question is presented you are required to declare the gross income from the relevant activity.

If there is no income from the relevant activity you should enter £0.

If the gross income from a relevant activity is greater than £0 the following sub-sections will be presented:

  • Specific Core Income Generating Activities (CIGA)
  • Relevant Activity (General)
  • Stage 2

Specific Core Income Generating Activities (CIGA) 

Information and guidance on the specific CIGA in respect of each relevant activity can be found in the economic substance requirements guidance and economic substance corporate return guidance.

Economic substance for companies

For each of the CIGA that the company is carrying out you should tick the box as appropriate. If the company is not carrying out a particular CIGA you should not tick the box.

If you want to provide other information regarding the CIGA you can do so within the text box.

Relevant activity (General) 

For each of the relevant activities the company is carrying out there is a series of questions posed. Guidance on these questions can be found in the economic substance requirements guidance and economic substance corporate return guidance.

Economic substance for companies

Accounting profits attributable to the relevant activity in the financial period

You should enter the amount of the accounting profit attributable to the relevant activity.

If there is no profit or there is a loss, enter £0.

Number of employees (or equivalent) in Jersey 

You should enter the measure of full time equivalent (FTE) employees working on the relevant activities. If this includes less than a whole FTE you can enter a part of an FTE.

Number of employees above with reportable qualifications

You should enter the number of employees working on the relevant activities which have reportable qualifications. Enter the number of FTEs with reportable qualifications. If this includes less than a whole FTE you can enter a part FTE.

For example:

​Company T has four and a quarter FTEs working on the relevant activities. The company should enter 4.25 alongside this question.

Premises Address in Jersey.

You should enter the address of the premises in Jersey used in the relevant activity. If there is more than one address used you can add additional addresses by clicking on add another premise.

Total Gross Expenditure in Jersey

You should enter the total expenditure incurred by the company on the relevant activity. You should enter a positive whole number. Ignore pence. 

If there was no expenditure incurred by the company on the relevant activity enter £0. 

Total Gross Expenditure incurred on outsourcing providers in Jersey

If the company incurs expenditure on outsourcing providers in the financial period you should enter the gross amount expended. You should enter a positive whole number. Ignore pence. 

If there was no expenditure incurred by the company on outsourcing providers enter £0. 

Where the amount entered is greater than £0 then some additional questions in the sub-section outsourcing will be presented.

Specific Core Income Generating Activities (CIGA) - Intellectual Property Houlding Business

There are some specific questions presented in respect of the relevant activity relating to Intellectual Property (IP) Holding Business. Where an IP Holding Business is considered to be high risk the following additional questions will be presented.

Question ES10p: Is the company a high risk company as defined in the legislation?

If the company is a high risk IP Holding Business as defined in Article 1 of the Economic Substance Law you should answer yes to this question.

If the company is not a high risk IP Holding Business as defined in Article 1 of the Economic Substance Law you should answer no to this question.

Questions ES11p and ES12p: Immediate parent (or other holding body) and address of immediate parent

You are required to state the full name of the immediate parent of the company and the address of the immediate parent.

Questions ES13p and ES14p: Ultimate Parent (or other ultimate holding body) and address of ultimate parent

You are required to state the full name of the ultimate parent of the company and the address of the ultimate parent.

Questions ES15p to ES17p: Number of ultimate beneficial owners, ultimate beneficial owners names and ultimate beneficial owners addresses

In the context of this question the meaning of an ultimate beneficial owner is aligned with the definition used by the Jersey Financial Services Commission (JFSC) for the purpose of collecting information in respect of beneficial ownership and control of a company.

Enter the number of ultimate beneficial owners in question ES15p. If there are no ultimate beneficial owners which meet the definition then enter 0.

For each ultimate beneficial owner you are require to provide the name and address. Where there is more than one you can add the details of additional ultimate beneficial owners by clicking on add ultimate beneficial owner.

The number of ultimate beneficial owners in question ES15p should equal the number of ultimate beneficial owners for which details of the name and address are provided. If this does not match then the error message invalid count will be displayed alongside question ES15p. You should either amend the number of ultimate beneficial owners or add the details of additional beneficial owners as appropriate.

Question ES18p: Net book value of the tangible assets held in the course of carrying out the relevant activities

You should enter the book value of the tangible assets of the company for the financial period which are held in the course of carrying out the relevant activities.

Question ES19p: Are you attaching evidence to rebut the presumption that the company fails the economic substance test?

If you wish to rebut the presumption that the company fails the economic substance test you may attach evidence to support the rebuttal. To attach evidence answer yes to this question. 

You will be able to attach PDF copies of the evidence you wish to present when completing section 9.

Has one or more of the CIGA been outsourced?

If any of the expenditure incurred on outsourcing relates to the outsourcing of a CIGA you should answer yes to this question.

Where you answer yes to this question you will be presented with additional questions regarding the outsourcing provider.

If you do not outsource a CIGA you should answer no to this question. In this case there will be no further questions in this sub-section.

To how many outsourcing providers has the CIGA been outsourced?

You should enter the number of outsourcing providers.

For each outsourcing provider you should then provide the following information:

  • the name of the outsourcing provider
  • the expenditure on the outsourcing provider
  • the TIN (if known)
  • the address of the outsourcing provider
  • whether or not the outsourcing providers’ employees have been included within the employee FTEs carrying on the relevant activity
  • whether the outsourcing providers’ premises has been included in premises used in Jersey to carry on the relevant activity.

If there is more than one outsourcing provider you can add the details of additional outsources by clicking on add outsourcing provider.

If the number of outsources declared does not match the number of outsourcer in respect of who details are provided then the warning invalid count will appear alongside this question. You will either need to change the number of outsourcers or add the details of additional outsources as appropriate.

Activities: Economic substance stage 2

The questions in these sub-sections will only be presented if, in respect of one of the relevant activities, the gross income from the relevant activities in the financial period is an amount greater than £0.

For guidance on the questions presented in these sub-sections you should refer to the guidance economic substance requirements guidance and economic substance corporate return guidance.

Economic substance for companies

Question ES4: Have there been board meetings in Jersey, with a quorum of directors physically present, at an adequate frequency?  

Based on the company’s own analysis you are required to state whether the board meetings in Jersey are at an adequate frequency.

If you consider that such board meetings are held at an adequate frequency you should answer yes if you do not consider that such board are held at an adequate frequency you should answer no.  

Question ES5: How many board meetings were held as above?

You should enter the number of board meetings held in Jersey where a quorum of directors where physically present.

Question ES6: Were strategic decisions made at those meetings?

If strategic decisions of the company were made by the board of directors at the meetings stated in question ES5 you should answer yes to this question.

If no strategic decisions of the company were made by the board of directors at the meetings stated in question ES5 you should answer no to this question.

Question ES7: Are the board minutes and company records kept in Jersey?

If all of the minutes of all the board meetings of the company and all the company records are kept in Jersey you should answer yes to this question. If however some of these records are not kept in Jersey you should answer no to this question.

Question ES8: Do the board have sufficient expertise and knowledge?

Based on the company’s own analysis you are required to state whether the board of directors, as a whole, have necessary knowledge and expertise to discharge their duties as a board.

If on this analysis it is considered that the board of directors has sufficient knowledge and expertise you should answer yes to this question. However if it is considered that the board of directors does not have sufficient knowledge and expertise you should answer no to this question.

Question ES9: Does the company meet the test for substance under Article 5 in respect of relevant activity /  activities?

Based on the company’s own analysis you are required to state whether the company meets the substance test in Article 5 of the Economic Substance Law.

If on this analysis it is considered that the company meets the substance test you should answer yes to this question. However if it is considered that the company does not meet the substance test you should answer no to this question.

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