Economic Substance, Corporate Tax residence and the implications of Corona Virus

The continued daily updates of the Coronavirus situation have us all concerned from both a personal and professional perspective. However, what is clear during this time of uncertainty is that we all need to be looking out for each other and adapting our daily lives to accommodate the necessary changes to our usual routine.

Coronavirus has now been declared a pandemic by the World Health Organisation, many companies and other entities globally will be concerned as to whether restrictions or changes to normal working practices (self-isolation, working from home, avoiding social interaction) could have an impact on the ability to:

  1. pass the economic substance test or
  2. (for a foreign company which is tax resident offshore on the basis of management and control in that offshore jurisdiction) maintain tax residency in that offshore jurisdiction, especially where board meetings are not able to occur physically in the relevant jurisdiction.

The tax authorities in Jersey have now issued an advisory note to allay some of those concerns, to make it clear that where a company has had to temporarily change operating practices as a result of Coronavirus (e.g. instigating board meetings normally held in Jersey to virtual meetings) then this will not result in a company failing the economic substance test or lose, for the purposes of Jersey taxation, its Jersey tax residency.

At present, we have not yet seen similar announcements from our other offshore jurisdictions. We will however provide further updates on this topic for our other jurisdictions once we receive confirmation.

Companies still need to ensure that all meetings continue to otherwise be held in accordance with the company’s constitutional documents. Companies may wish to consider taking advice on whether any changes to governance arrangements in those documents would need to be made as a result of restrictions imposed as a result of Coronavirus, to provide additional flexibility.

Simon Voisin, Director, commented “It is heartening to see a pragmatic approach being taken by the Jersey Tax authorities, in this regard, during what is a difficult time for everyone.”

With the situation evolving on daily basis we will of course provide continual updates and should you have any queries please do not hesitate to contact the team at Forward Group.