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 tax-exempt Collective Investment Vehicles (CIVs), which were previously out of scope of the Regulations collectively, will now only be out of scope where they are regulated by the GFSC and don't meet the criteria of a self-managed fund. 

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 1 is essentially a proposal for partial re-allocation of taxing rights and Pillar 2 proposes that large multinational enterprises will pay a minimum effective rate of tax of 15% on their profits. These proposals seek to address issues linked to the increasing globalisation and digitalisation of the economy.

An overwhelming majority of jurisdictions (including Guernsey) reached agreement on the proposals and the detailed implementation plan that was announced by the OECD in October 2021. Since then, technical discussions have continued to develop model rules, commentary, and the multilateral instruments/conventions that will be needed to implement them. This work is still ongoing, with the proposals continuing to develop.

It is expected that Guernsey will implement the Minimum Standards that are contained within the proposals (i.e. the Pillar 1 Minimum Standard and the Pillar 2 Subject to Tax Rule, which applies to DTTs). However, no further details have been released on how this could apply in practice.

The other element of Pillar 2 (GloBE) has been designed so that jurisdictions are not required to adopt the GloBE rules but must accept the application of them by other jurisdictions. The Guernsey government continues to engage with stakeholders on the most appropriate implementation option for Guernsey and for the multinational groups that operate in the Island.