Economic substance: It's time for a health check

Economic substance health check

In 2016, the EU Code of Conduct Group on Business Taxation – in line with the OECD Base Erosion and Profit Shifting (BEPS) initiative – committed to coordinated policy efforts in the fight against tax fraud, evasion and avoidance. One consequence of this has been increased scrutiny on tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity.

Within the EU, the Anti-Tax Avoidance Directive (ATAD) now lays down the minimum standards for EU member states. In response to developing EU and international standards, a number of non-EU jurisdictions, including the Cayman Islands, Bermuda, BVI and the British Crown Dependencies, have also recently introduced local legislation to ensure adequate ‘economic substance’ rules are in place. Jurisdictions that fail to meet the EU’s requirements risk being deemed uncooperative and blacklisted.

Substance requirements are typically directed towards businesses that wish to claim tax residency in a particular jurisdiction and which carry out business activities that are categorised as ‘geographically mobile’. But each jurisdiction has its own application of the EU rules, with variations in scope and specific requirements.

So what does all of this mean in practice? Who is affected and what needs to be done? And how exactly do requirements vary across different key jurisdictions? Find the answers in our new Economic Substance fact sheet, as well as details of how IQ-EQ helps its clients meet economic substance requirements across the globe. To read and download this document, please click the link in the right-hand column of this page.