Jersey proposes to extend economic substance regime to partnerships

The EU Code of Conduct Group (Business Taxation) (CCG) originally white-listed Jersey on the basis of its current economic substance legislation, which came into effect in January 2019. However, the CCG has widened the scope of its economic substance requirements. In its report to the Council of European Finance Ministers (ECOFIN) in November 2020, the CCG stated that partnerships must also be included within the scope of the legislation.

Consultation on the proposal ends on 1 March 2021. The period allowed is unusually short because the CCG insists that the amended economic substance legislation must be in effect by 1 July this year. However, a six-month extension to the July 2021 deadline commencement date is to be provided for pre-existing partnerships.

The CCG's amended economic substance requirement also applies to Anguilla, Barbados, Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey and the Isle of Man.

The government and Revenue Jersey are now working closely with the other Crown Dependencies' tax authorities on the necessary changes to the rules, which will follow the already established approach for companies as closely as possible. Nevertheless, the consultation notes that ‘the Government of Jersey is aware that partnerships are fundamentally different to companies and that the partners may be drawn from a much wider range of circumstances.’

The main difference is that the economic substance regime for companies is determined by tax residence, but there is no international concept of tax residence for partnerships. The Crown Dependencies are therefore proposing that the new rules should apply only to partnerships that are managed and controlled within the jurisdiction. They are also proposing exemptions for partnerships that are fund vehicles, are comprised solely of individual partners or are wholly domestic.

Jersey will also hold a further consultation on streamlining the administration of partnership taxation. However, these changes will not have a practical effect on most partnerships until the filing of 2022 returns in 2023.

Sources

• Jersey government
• Jersey government (Consultation, PDF)