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BE AWARE OF IMPACT OF COVID-19 ON ECONOMIC SUBSTANCE

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The Isle of Man’s tax legislation requires companies that are tax resident on the Island - and generating income from relevant sector activities - to comply with the economic substance test.

That encompasses the requirements to conduct core income-generating activities on the Island and the “managed and directed” test.

Specifically, the latter requires that significant board meetings, where matters are deliberated and approved, must be conducted on the Island and the Directors that form a quorum must be physically present.

However, the disruption in international travel has compounded the risk of non-compliance with the economic substance legislation, explained Chris Dera, Tax Division Manager at Grant Thornton Isle of Man.

‘This is due to the inability of directors and other key personnel to travel in and out of the Island. Unlike in other jurisdictions with similar economic substance legislation, the Isle of Man Income Tax Division has not yet released any published views with guidance for the affected entities.

‘Though it is widely expected the Division will take a more pragmatic view when assessing client circumstances on a case-by-case basis, we nevertheless strongly recommend affected client entities take the initiative. Our advice is to self-assess your own specific circumstances with a view to mitigating non-compliance risk and retain relevant documentary evidence which is sufficient to demonstrate any adequate compliance.’

Chris added: ‘There are various potential impacts and, in view of the likely prolonged disruption to global travel, a recommended mitigating measure is to consider the appointment of alternate Isle of Man based directors to ensure those companies affected can form a quorum.’

Grant Thornton’s fiduciary services has a team of highly qualified and experienced directors who are able to act as alternate directors and assist the affected entities with filings and the requisite formalities for appointment of alternate directors.

Additionally, Grant Thornton’s tax team can assist and advise businesses on the implications of the economic substance legislation and all other Isle of Man and international tax matters.

 

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