Guernsey, Channel Islands

Economic substance

The economic substance requirements apply to companies from 1 January 2019. Effective 1 July 2021 and 1 January 2022, the economic substance rules also apply for new partnerships and existing partnerships, respectively. A body, which is defined as a partnership or company, is subject to the Guernsey economic substance requirements if it is Guernsey tax resident, undertakes a relevant activity, and has gross income during an accounting period from that activity. The relevant activities are as follows:

• Banking.
• Insurance.
• Fund management.
• Financing and leasing.
• Headquartering.
• Shipping.
• Distribution and service centres.
• Pure equity holding companies.
• Intellectual property holding business (i.e. IP company).

Please note that regulated Collective Investment Vehicles (CIVs) are in scope of the economic substance requirements if they meet the self-managed conditions.

US-Guernsey intergovernmental agreement (IGA)

On 13 December 2013, Guernsey signed an IGA regarding the implementation of Foreign Account Tax Compliance Act (FATCA). The IGA has been ratified by Guernsey's Parliament and is embodied in The Income Tax (Approved International Agreements) (Implementation) (United Kingdom and United States of America) Regulations 2014. Its operative provisions came into force from 30 June 2014.

UK-Guernsey IGA

On 22 October 2013, Guernsey signed a FATCA-style IGA with the United Kingdom (UK-Guernsey IGA) under which mandatory disclosure requirements may be imposed in respect of ‘Investors in the Fund’ who are UK resident or who are non-UK entities controlled by one or more UK resident individuals, unless a relevant exemption applies. The UK-Guernsey IGA has been ratified by Guernsey's Parliament and is embodied in The Income Tax (Approved International Agreements) (Implementation) (United Kingdom and United States of America) Regulations 2014. Its operative provisions came into force from 30 June 2014.

Common Reporting Standard (CRS)

Guernsey adopted global CRS on Automatic Exchange of Information on 1 January 2016. The first reporting took place in 2017.

Mandatory Disclosure Regime (MDR)

On 11 March 2020, The government of Guernsey passed legislation introducing the MDR aligned to the OECD Model Mandatory Disclosure Rules for CRS Avoidance Arrangements and Opaque Offshore Structures.

At the time of writing, although the law had been made, it had yet to be brought into force.

Once in force, the law will require promoters, service providers, and, in some circumstance, users of CRS avoidance arrangements and opaque offshore structures to provide the Director of the Revenue Service with information about those arrangements and structures within a 30-day window of, broadly, the arrangement being made available.

It is intended that information relating to users resident in other jurisdictions will be exchanged with the tax authority of that jurisdiction in accordance with the terms of the Multilateral Competent Authority Agreement on the automatic exchange regarding CRS avoidance arrangements and opaque offshore structures, also ratified by the States of Guernsey on 11 March 2020.

OECD's Inclusive Framework

The OECD has been working on a global solution to reform the international corporate tax framework, which will affect how large multinational enterprises are taxed around the world.

That framework is based on two broad work streams: Pillar One is essentially a proposal for partial re-allocation of taxing rights and Pillar Two proposes that large multinational enterprises will pay a minimum effective rate of tax of 15% on their profits.

Guernsey has approved legislation to implement the OECD’s Pillar Two rules, effective 1 January 2025. Guernsey has implemented the Qualified Domestic Top-up Tax (DTT) and the Multinational Top-up Tax (MTT) for the Qualified Income Inclusion Rule, following the GloBE Model Rules with some modifications. Applying the rules and determining the impact are likely to be very complex and pose a number of practical challenges. Entities that have to pay a top-up tax (whether MTT or DTT) need to consider whether these additional taxes impact the recognition and measurement of their deferred tax assets and liabilities. In addition, entities will need to consider the disclosure implications as there will be a need to make disclosures in advance of the rules becoming effective. Where entities are still evaluating the impact of the rules, a statement to that effect is required. Management will need to be able to support any statement that Pillar Two will not have a material impact, and we would expect the impact assessments to be complete if this is being asserted.