Under new guidance issued last week by several crown dependencies, namely Guernsey, the Isle of Man and Jersey have regulated public and private fund companies and have verified fall out of scope of the economic substance legislation based in these destinations, which was introduced at the start of the year on January 1st.
The substance legislation was introduced to comply with the EU Code of Conduct Group Business Taxation’s and the first draft was primarily amended in April, with the clarifications being released now.
Going forward, all companies that are conducting certain specified geographically mobile activities within a jurisdiction are required to have economic activities and presence there that is proportionate with its recorded revenue generation.
The three territories issued the first draft guidance on the substance requirements in April last year, which have now been updated with some fundamental clarifications regarding the regulations.
The main clarifications to the first draft are to clarify:
The position of fund management businesses.
The definition of collective investment vehicles (CIVs).
How they will include both public & private fund companies regulated in the jurisdiction.
Fund vehicles will normally not be required to prove economic substance, although their subsidiaries may be in scope if they are conducting relevant activities as specified by the regulations, such as intra-group loans and holding company activities.
Fund & Portfolio Managers
Fund managers will fall into scope where they have income in relation to their fund management activities. Corporate self-managed funds are also anticipated to be covered when the legislation is amended next year in 2020.
Although it is possible that the position may change in future, the substance requirements do not apply to any limited partnerships (LTDs), regardless of whether or not they are CIVs, as per the first draft.
The requirement for board meetings in the jurisdiction is also clearer. It is not necessary for all of the company’s meetings to be held in the jurisdiction, but most will have to be held there with a quorum of directors physically present. Provided they do not outweigh local jurisdiction; specific meetings may be held abroad, and isolated decisions regarding company business will also be allowed to be held abroad.
Nevertheless, a fund management company is unlikely to meet the substance requirements if strategic decisions have been delegated to entities outside the jurisdiction without real oversight by the board.
The revisions to the joint guidance also provide additional guidance for individuals in the following sectors:
High-risk intellectual property.
Maritime & shipping.