The test is the main criteria used by the EU when placing third countries on its blacklist of jurisdictions regarding ‘fair taxation’.
Published in December 2017, the EU put Jersey on its grey-list; meaning the jurisdiction operates tax transparency regimes – similar to the white-listed jurisdictions – but does not comply with one additional guideline that businesses should only be granted tax residence if they have economic substance in that jurisdiction.
With the new legislation, following a consultation in August 2018, the Jersey Government will require companies to evidence that their activities are run in Jersey, as well as being directed and managed in the jurisdiction. In addition, the companies’ core income would have to be generated in Jersey.
It is understood that the draft law will be passed before the end of 2018, which is also when the EU will start its revision of the blacklist.
Senator Ian Gorst, minister for external relations, said: “I am delighted that Jersey is the first jurisdiction to lodge new legislation to meet the concerns on economic substance expressed by the EU Code of Conduct Group on Business Taxation.
“As well as meeting the commitment made in 2017, the lodging of this legislation demonstrates Jersey’s well-deserved reputation as a jurisdiction of substance that is committed to the development of new international standards in fair taxation and to the maintenance of a good neighbour policy with the EU.”