Podcast

Economic Substance – The reality and practical issues in the Isle of Man

26 May 2021

IQ-EQ is thrilled to share a recording of the third webinar within our global series that aims to shed light on the reality and practical issues of economic substance in all key investment hubs. In this session, we focus on the Isle of Man. 

IQ-EQ’s Group Investment Structuring Leader, Pascal Rapallino, kicks off the event by providing a brief overview of the series. He is joined by two expert panellists: Robert Rotherham, Partner at KPMG, and Craig Brown, Managing Director of IQ-EQ Isle of Man.

Robert Rotherham presents the latest updates affecting economic substance in the Isle of Man, while Craig Brown elaborates on the best practices to ensure economic substance compliance.

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Transcript

Spoken content

0:06

Good day everyone! I am Pascal Rapallino, Group Investment Structuring Leader at IQ-EQ. 

 

I would like to welcome all of you to this IQ-EQ webinar, in which we shall discuss the theme of economic substance in the Isle of Man. To tell you a little more about IQ-EQ, we are an investor services firm employing a global workforce of 3500+ people located in 23 jurisdictions with assets under administration (AUA) exceeding US$500 billion.

 

In terms of the broader context to this webinar, it is the third in a global series that IQ-EQ is hosting to cover the ground realities and particular issues of economic substance in all key investment hubs. A topic that is gaining increasing importance, the economic substance agenda is being driven from the top by the OECD through the BEPS action plan and by the EU through ATAD I and ATAD II. In addition, the outbreak and continued prevalence of COVID-19 have posed challenges for companies in complying with economic substance requirements, as travel restrictions and social distancing have transformed how corporate meetings are being held in all the corners of the world.

As a quick refresher for who attended the previous webinars, and to fill in those of you who couldn’t make it – the first webinar discussed economic substance in the Netherlands while the second one dissected the ground realities in Switzerland. Together with other leading investment hubs such as the Netherlands and Switzerland, the Isle of Man has also recognised the importance of ensuring economic substance and has been taking a number of steps, which we will discuss in detail in today’s webinar.

On this note, we are delighted to be joined today by our special guest Robert Rotherham, who is a partner at KPMG and one of the Isle of Man's leading tax experts. Robert shall do a deep dive into the latest updates affecting economic substance in the Isle of Man, while Craig Brown, our Managing Director for the Isle of Man shall elaborate on the best practices to ensure economic substance compliance.

 

Finally, in terms of housekeeping, the webinar will last for almost 45 minutes, which includes 15 minutes at the end for a live Q-and-A session. Just to get started, if you have any questions during the presentation, please enter them into the question box in the control panel on your right.

 

Now, I am going to hand the mike over to Robert, to run the audience through key measures from this legislation in terms of their impact on economic substance in the jurisdiction Isle of Man, and the steps that your business should take to comply with these rules.

 

3:30

Thank you.

3:31

Thanks so much for the introduction Pascal and hello to everyone, hope you are well. As Pascal says, I'm a Tax Partner at KPMG in the Crown Dependencies based here in the Isle of Man.

3:50

So, as you know I'm going to focus on the outcomes of the economic substance rules. What I thought I'd do is start with just a quick reminder of the general background to the rules, and then describe their broad structure.

4:00

Just as a recap, the reason they were introduced was, essentially as a result of pressure from the European Union, in short the EU’s feedback in 2017 was that the Isle of Man together with several other low and no tax jurisdictions ticked all but one of the so-called tax good governance boxes.

4:19

The missing box was a perceived failure to comply with the requirement that, and apologies this bit is verbatim, the jurisdiction should not facilitate offshore structures or arrangements aimed at attracting profits which do not reflect real economic activity in that jurisdiction.

4:34

And so, as a result of this, the EU said to the Isle of Man and the other jurisdictions that failed that same criterion that they are going to be blacklisted if they didn't introduce economic substance requirements.

4:46

So that's the sort of genesis of the rules. All of the affected jurisdictions then committed to introduce such rules in late 2017. Of course, they didn't particularly want to be blacklisted. The Isle of Man Government actually enacted them in at the end of 2018, and since then both the EU and the OECD have confirmed that they are happy with them.

5:12

On the second slide, it came into force for all relevant Isle of Man resident companies with effect from accounting periods beginning on or after 1st of January 2019. And so, for the companies with December year ends, they've already had two full periods in which the rules have applied and now it's their third.

5:28

As well as talking about the way in which the rules work I will also cover off some recent developments in them and that's specifically their extension to self managed funds and their anticipated extension to partnerships, and I will come that those shortly.

5:41

So, firstly, how the rules work?

5:48

It's probably easiest to look at them in the context of three stages or filters, if you like.

5:53

Firstly, the rules only apply to Isle of Man tax resident companies. Companies that are Isle of Man tax resident, if it is incorporated in the Isle of Man or if it is not incorporated in the Isle of Man but the central management control of the company is exercised in the Isle of Man.

6:06

Now, we've not got time today to dive into the concept of central management control, but suffice to say if, for example, if a non Isle of Man incorporated company holds board meetings in the Isle of Man or has Isle of Man resident directors then it's probably worth checking to see whether it's an issue and you are potentially in the scope of the Isle of Man’s economic substance rules. For the sake of completeness, I should mention that it is possible for an Isle of Man incorporated company to be treated as non resident in the Isle of Man, subject to satisfying certain conditions, and that would have the effect of taking that company outside of the scope of the Isle of Man substance rules.

6:41

So if you've got an Isle of Man resident company, then the next step is to figure out whether it's got an income from a relevant sector.

6:48

I've got a slide coming up which sets out what each of those relevant sectors are. But I would stress that unlike some equivalent rules brought in in other jurisdictions, you do need income from the relevant sector to be within these rules.

7:00

In some of those other jurisdictions, I think the BVI is one of them, you are caught if you perform certain types of activities, irrespective of whether or not that generates income.

7:10

For most of the relevant sectors, if you have any income at all, then you are within the rules, even if that is as little as one pound and you're not excluded from the rules just because you are loss making, for example. There are a couple of exceptions to this, for example for service centre and distribution companies, this needs to be your main activity, so you can have income from that activity, but you wouldn't be caught by the rules if your main activity is something else, and that something else is within another relevant sector.

7:40

So if you have got an Isle of Man tax resident company with income from a relevant sector then you need to satisfy the substance requirements, and that's essentially comprised of three separate tests, all of which have got to be passed, and I am going to come to those in a minute.

7:59

So I'm not going to go through each of these relevant sectors. There they all are. It is worth noting that when the EU imposed this requirement to introduce substance rules, intellectual property was very high on their list of concerns, as they had this nagging suspicion that there are a a lot companies out there which generated significant revenues from the mere passive holding of IP without there necessarily being much going on in that company, in that jurisdiction.

8:27

That concern has manifested itself in the rules, by basically setting a higher bar for certain types of IP holding companies, called high risk IP companies, and they are those which have bought in IP from a related party and then also generate revenues from related parties.

8:42

So, those companies are only in the sights of these rules.

8:51

Banking, insurance and fund management companies will typically comply with the rules, and that's largely because they are regulated activities and so will generally be required to, by the terms of license, to perform certain types of activities anyway locally.

9:01

We find a practice that requires a lot of financing and leasing companies out there, which isn't a complete surprise, seeing as a financing company can generate any amount of interest say from a right to party loan.

9:13

There are possibly more distribution service centre businesses than many people thought, certainly me, with a pretty wide definition of what it means to be at a distribution or service centre business, because it includes the provision of services to foreign group entities, which, as you can imagine, could cover a fairly broad range of scenarios.

9:37

Just to include this slide, to briefly illustrate just how close the corporate service providers need to look at that book of business, in order to be sure that they've captured all of their in scope entities.

9:46

If you take the example of a property holding structure, well property itself isn't a relevant sector. But you can't just note that and move along because you might find that there are still in scope entities associated with it.

9:59

So here, we've got a trust and company property holding structure, not untypical if you're investing into the UK, and you’ve got two companies that are actually potentially within the scope of the substance rules so the holdco there, all it does is hold shares in the property holding company, that's most likely a pure equity holding company.

10:16

Again, that only matters if it generates dividend income. Remember, you've got the income requirement.

10:22

Then you've got two companies providing loan finance, one of which is a financing company on the basis that the loan is interest bearing.

10:30

We should perhaps note that it is income as defined for accounting purposes that counts here. What we are not generally dealing with is cash basis, it’s the accruals concept that we need to be mindful of.

10:41

So that's just a very brief example of why the substance rules might apply to more situations than you might perhaps otherwise suspect.

10:51

When we have an in scope entity, what is the substance requirement that we need to comply with? Well, as I mentioned earlier, there are three separate tests, and you got to pass them all.

10:59

Firstly, the company needs to be directed and managed in the Isle of Man.

11:03

This test itself consists of five separate mini tests. Again, all of those need to be passed, and these separate mini tests look at things like where are the board meetings held, no prizes for guessing that in the Isle of Man is a good thing and elsewhere, less so.

11:19

Are they attended by a quorum of physically present directors? So, directors who aren’t dialling in? Is it clear that the board meetings are forums in which central management controls companies exercised and if so, is this reflected in the minutes of each meeting?

11:32

So that test looks at a mixture of concepts that you might be familiar with when considering matters company tax residence, such as central management control. It goes beyond that and it poses more stringent requirements. For example, the need to have a quorum of physically present directors, board meetings, that are held in the Isle of Man. So, I guess the key there is not to underestimate the discipline that needs to be observed when trying to ensure that you pass that test.

11:58

I should briefly acknowledge that Covid has of course impacted on the ability of foreign based directors to travel to the Isle of Man.

12:05

Whilst the Isle of Man tax authorities haven’t actually come out and said this, I think we would expect them to be sympathetic situations where the directed and managed test is failed purely as a result of travel restrictions.

12:16

So there’ll be some latitude there, hopefully. 

12:20

The second test surrounds the concept of core income generating activities or CIGA for short.

12:25

It's perhaps those subjective three tests, and certainly one which we get asked to give advice on probably more than on any other aspect of the rules.

12:35

The basic premise is that an in scope entity needs to identify what its CIGA are and then determine whether or not those activities are formed here in the Isle of Man, and if they are then great, if not, then there might be a problem.

12:47

Certainly if the CIGA is carried out somewhere else and nobody in the Isle of Man is properly supervising or monitoring those overseas activities. In some cases, the CIGA might refer to relatively low level low intensity activities. For example, for some finance and leasing companies, it might just mean the monitoring and periodic review of the terms of an inter- company loan.

13:09

Whilst at the other end of that spectrum an IP company CIGA might be far more high intensity research and development activities.

13:19

The legislation does list out what it considers the main CIGA to be, in respect of each relevant sector but those lists aren't supposed to be exhaustive, and if the company considers that it has got other CIGA then it can include them in its analysis.

13:31

So this is a really key issue, so for an in scope entity what drives value, and is it being done in the Isle of Man? So, if you find that you probably don’t satisfy ths test, if not, what can you restructure to change this?

13:45

Again, if so, great you comply to the rules once you've made those changes.

13:50

If not, for example, it's just commercially impractical to make the necessary changes then you are going to fail to comply and the best advice is to figure this out as quickly such that you don’t get hit too hard by sanctions that apply in such situations and I’ll outline the sanctions shortly.

14:08

The third test is that of needing to have adequate people, premises and expenditure, in the context of the on-island relevant sector activities. There aren’t any defined thresholds here, so, again, it's a largely subjective test.

14:22

but let’s give a pretty facile example. If you to declare £100 million worth of relevant sector income at the same time confirming that you've got one part time employee and a one room small office and your only local costs are salary and rent, then you can imagine this would pique the interest of the local tax authorities, who would want to have a close look at why that's considered to be adequate in the context of £100 million worth of income.

14:47

So, for in scope entities who considered themselves to comply with the rules, then you can look at this as a test.

14:52

Or you can look at the test as a way of offering statistical support for that view, ie, that you comply and equally you will get the local tax authorities some metrics around which they can frame their own risk assessments.

15:07

I should quickly mention that these tests apply to all in scope entities,

15:10

other than pure equity holding companies, which have a slightly lighter touch set of tests, and they basically require them to comply with local company law and to have adequate people, premises, on the island. Just as a final word on the various tests, in our practical experience, we've dealt with companies in all of these relevant sectors, but a few issues do seem to keep popping up, irrespective of the type of activity.

15:33

Because whilst most organizations have now got to grips with the way the rules work, one relatively common issue is the simple failure to recognize that the company has got relevant sector income.

15:43

Whether because of ignorance of the rules, incorrect assumptions as to the scope of the particular relevant sector, or perhaps even lack of visibility of the small amounts of interest income.

15:53

Of course, things change over time. So there does need to be some sort of continuous monitoring process in place.

16:00

Another issue that often gets overlooked is non Isle of Man incorporated companies. Remember I said that if they are centrally controlled and managed in the Isle of Man they are going to be within the scope of the rules, and so do need to dealt with.

16:13

And then there are other situations where a company recognised that it is in the rules, but perhaps it's tripped up over a particular aspect of them.

16:20

And that's resulted in what you might call a technical fail.

16:25

I think for these companies the key is that they can demonstrate that the problem is easily rectified and not only that, they've got a plan to rectify it, and if they can tick both of those boxes and a suitable disclosure is made to the tax authorities then I think they'd be treated fairly leniently.

16:42

Just before I go on to discuss recent developments, I am conscious that I have mentioned these rules are not unique to the Isle of Man and just thought I'd share with you the context that the full list of the so-called 2.2 jurisdictions. 2.2 is the specific EU key criteria with respect of which these countries were found to be deficient.

17:00

So that's them all, and as I said they’ve all introduced similar rules, there are some local nuances. Some rules have included partnerships within their scope from the start, some didn't have an income requirement or don't have an income requirement and are aimed at types of activity. To me that's always seemed a little odd given what the rules are trying to achieve.

17:19

They're trying to achieve a disincentive to profit shifts. So, why worry about situations in which there is no income therefore, by definition no profit?

17:26

There are also quite widely varying level of financial penalties. For example, the maximum payable under the Isle of Man’s rules is £100,000 for a particular accounting period.

17:37

There's no statutory threshold for how much that might be mitigated, whereas in Bermuda, there are maximum and minimum penalty levels.

17:45

In the BVI, for example, the maximum penalty is $400,000.

17:54

Just on to some recent developments. Firstly, the fund management relevant sector has been expanded to also encompass self-managed schemes.

18:02

So, Isle of Man companies which are collective investment schemes as defined by local law and which don't have any other person or entity providing fund management services to it are now considered to be within the scope of the Isle of Man substance rules. Interestingly, they haven't already said how the Isle of Man rules have an income requirement. Self-managed funds are unique within the Isle of Man’s rules because they're considered to be within the scope, whether or not they've got an income of any description, and as I say that's something of an anomaly in the context of Isle of Man’s rules. Because all of the in scope entities and relevant sectors have an income requirement and, if you were to ask me, I couldn't honestly put my finger on why that's not the case here, too.

18:41

You are left in a slightly bizarre situation. If you've not got a fund manager, you presumably won't be paying anyone fund management fees which is the income which is being tested by the substance rules, in the context of the managers of non self-managed funds, which are in scope.

18:54

Yet, despite that lack of income, numbers, lack of income diversion, which, as I say, is what the substance rules are all about, you are still going to have to demonstrate that you've got adequate substance, so, let us say that’s slightly perplexing.

19:07

Just in terms of timing, the expansion of the rules to self-managed schemes comes in with effect from accounting periods commencing on or after the 16th of December 2020. So, if you've got a 31 December year end, then your first in scope period started on first of January this year.

19:22

And so, if you haven't already looked at those, then you need to look at the three tests, described earlier.

19:37
 
 

Another development in the world of economic substance is the imminent extension of the scope of the rules to partnerships, We've yet to hear anything from the Isle of Man income tax division on this but we do know that the EU have set out their view that the political commitment given back in 2018 by the Isle of Man and several other jurisdictions extended at least in the EU's minds to introducing substance for partnerships and not just to companies.

20:02

So whilst the income tax division have so far been quiet, it was confirmed in the Isle of Man’s budget speech back in February that something will be brought to Parliament in June.

20:12

In this respect, I should say at the outset it's a bit of a head scratcher this one too, because partnerships are almost always treated as transparent for tax purposes, and so quite why they need to be tested for economic substance is something else that is far from clear to me, but that’s the world we live in. 

20:28

So we've not got a great deal of information to go on locally as of yet, but the Jersey authorities have issued a consultation document on substance for partnerships which I suspect reflects thoughts that aren’t a million miles away from those of their Isle of Man counterparts, and so, I'll just briefly summarize the gist of that consultation document and I’ve included a Web Link on the slide if anyone wants more detail.

20:51

The proposal is for the substance rules as they currently stand for companies to be extended without many, if any changes, to partnerships. They will first come into scope for accounting periods commencing on or after July 1 this year. The rules are going to apply to the partnership itself, so that's the entity that's going to be tested, not the individual partners. What's different about partnerships, of course, is that there is generally no concept of tax residence. Like I’ve already mentioned they are typically not taxable in their own right, So, residence is a bit of a moot point.

21:21

That's one of the main things currently of the debate is how we will end up with a sensible position in respective of territoriality, potentially that's going to be achieved by disregarding partnerships, which have a nexus in some other jurisdiction, but the definition of nexus has yet to be defined either. So there's a lot to be clarified there.

21:41

There are a few other possible exemptions to the scope to substance partnerships that are up for discussion with the EU. Remember, the substance rules were essentially introduced to avoid the threat of an EU blacklisting and so it’s important that that the EU are kept on side with their application. Those potential exemptions include partnerships which are fund vehicles, because, you know the substance rules of companies don't extend to funds, only to fund managers.

22:09

And that's basically because there's an expectation that existing regulatory requirements should be sufficient to ensure that they have substance anyway.  Exemptions are potentially for partnerships solely comprised of individual partners rather than corporate partners, and then it's hoped that partnerships which are wholly domestic should also be excluded from the rules.

22:27

So where it's only activity on island and it is not part of a wider group, that makes sense, of course, as substance is aimed after all at cross border profit shifting.

22:36

But there's no equivalent carve out for purely domestic companies. And so I'm not quite sure how successful attempts at convincing me on this point of partnerships is going to be.

22:46

Finally, there are some bits and bobs in there of an administrative nature in the consultation document. But in big picture terms, I suppose the key highlight is that it is clear that economic substance rules will inevitably be extended to partnerships. As for the corporate rules the lead in periods are going to be very tight. The rules are likely to be applicable here in Isle of Man with effect as from 1st of July.

23:08

So, again, if this isn't on your radar currently then perhaps it should be.

23:13

And then, finally, without wishing to scaremonger, just to remind everybody why it's important to get it right. 

23:20

If you fail to comply with the substance rules, then the Isle of Man tax authorities, for a start, will send information pertaining to that company to the tax authorities in other relevant jurisdictions.

23:31

And that might be the country in which a UBO or a parent company is based.

23:35

You’ll also be fined, and the highest level of fine for a high risk IP company is £100,000 in respect of the particular accounting period.

23:43

And ultimately, you might be struck off the Isle of Man’s companies’ registery.

23:47

Exchange of information happens automatically for high risk IP companies, even if they can demonstrate that they comply with the rules.

23:54

And if you're sort of particularly naughty and try to fraudulently avoid the application of the rules, then the rules actually contain provisions that might say you end up in prison.

24:04

But by way of closing remarks, and so as not to end on that sombre note, I should say that the Isle of Man tax authorities appear to be taking a fairly pragmatic approach, particularly in instances of the year one failure

24:17

where you might describe the failure as sort of technical, and there is a relatively easy way to rectify the situation.

24:23

But having said that, they have not yet really got around to starting the bulk of their reviews and their subsequent enforcement measures. I think we'll see how that goes over the next few months.

24:33

So there will no doubt there will be some casualties. Anecdotally, some might be companies that already left the island, but I think that for the vast bulk you would expect them to manage to comply, some perhaps only after making changes. For example, you can easily trip up over the directed and managed test, as I have mentioned. Interests could be missed out, that sort of thing. So really, I think it's just a case of being prepared and in many cases just ensuring that you get the basics right.

24:57

Of course, take advice when you need it, I would of course say that. On that I'll think I’ll pass over to Craig. 

Thanks, Rob, for such a clear, informative summary of the more technical aspects of economic substance here on the Isle of Man. As Pascal indicated earlier on, what I now hope to do is give you a few case studies, some examples of our clients in the Isle of Man and what economic substance means for them.

25:31

For us, in the Isle of Man, it's a very well established, long established principle of applying economic substance. We've got extensive experience here at IQ-EQ of servicing our clients in line with both best practice and complying with the latest, local and international legal and regulatory requirements.

25:52

What I'm hoping to do by giving you the case studies is provide some simple examples of the types of clients that we have, the issues that we faced with that, and what it means for them. Now, by their very nature, these case studies are quite generic, and of course, we try to avoid any way of being able to identify the client from them. But the principles that are covered within them are very widely applicable, so hopefully you'll get something useful from that.

26:21

Real estate is something that is very much at the core of what we do here in the Isle of Man, so it seems only right and proper that our first case study covers a real estate client. This particular client is relatively new to us. It's an international real estate developer with operations in a number of jurisdictions around the world. Prior to coming to IQ-EQ, the structure consisted of a number of Caribbean holding companies and an equal number of underlying special purpose vehicles in a variety of jurisdictions holding those real estate assets. Now, the client in this situation wanted to move the structure into a European time zone.

27:00

And at the same time, take the opportunity to choose the jurisdiction that had stable and clear regulation for economic substance and other similar regulations. And for that reason, the Isle of Man was chosen.

27:14

We therefore assisted with the re-domiciliation of the structure and we now provide this particular client, the same as to many others, the registered office, the company directors, company secretarial and governance functions, and, very importantly, the day-to-day administration for the companies.

27:32

Now, in a situation like this, where the residence of the company has shifted, it's more important than ever to be able to demonstrate that the substance itself has shifted fully to the Isle of Man.

27:44

Now, of course, the trading companies themselves aren't within the scope of current substance regulations. And in any case, in this particular structure, those entities were tax resident where their profits were earned.

27:55

However, holding companies may be within scope if they're subject to income, and therefore it's important that they're able to demonstrate substance, and amongst other things for this particular client, we did that by making sure the majority of the board where residents in the Isle of Man, that regular board meetings were held here to approve strategic decisions. And also, that the ongoing administration on day-to-day matters is carried out here in the Isle of Man office.

28:23

That is a fairly simple case study for a new client coming in. But let me move on to a client, which is probably one of our longest serving clients here in the Isle of Man. It's a multinational diversified group. It has an extensive Isle of Man presence. And it would be very simple, in the circumstances, to be a little complacent and assume that because it had been here for so long that there were no issues with economic substance, particularly when the services that we're providing were full services. Again, it was registered office, provision of directors, company secretarial services, and administration services to those companies.

29:02

What we did though, rather than simply resting on our laurels, we did carry out a thorough review of the client structures. And what that identified is that due to the diversity of the operations within the structure, a reasonable number of the companies were in more than just one relevant sector. As Rob indicated earlier, there are a number of relevant sectors for economic substance, so it's important that you don't overlook that. And in this case, it was predominantly financing and leasing and little bit of pure equity holding.

29:33

What the review also identified for us, though, is that there were a number of flags that, in isolation, wouldn't necessarily be a problem, but taken together, if we didn't address them, could potentially lead to concerns as to whether or not those companies could demonstrate economic substance here. Those flags were the fact that we have split boards on some of the companies, understandable dues to the geographical diversity of the client's structure.

30:00

We also had fairly widespread use of resolutions within the business, and this had been for a variety of reasons, often because of the geographical spread of the boards of those companies, but also, because, in some of the territories in which we're operating, a written resolution is necessary to conduct some commercial business, we would often use a written resolution.

30:22

Physical meetings of the entire board would not always be possible. And as I'm sure that many of you have experienced, that was increasingly so over the past year with Covid.

30:33

So what we did with this was we decided to address these concerns and make sure that we were absolutely beyond reproach when it came to being able to demonstrate economic substance. We made some minor constitutional changes to the board constitutions. And that could be as simple as reserving certain powers to the Isle of Man resident directors, or in the case where you had a mixed board, and the possibility that some of the board members may be located elsewhere, we would perhaps change it so that again, for particular decisions, the quorum for that meeting would consist only of those directors physically present in the Isle of Man.

31:08

A bit of a Covid solution. We held telephonic meetings whenever physical meeting wasn't possible, although, again, in those circumstances, we would, of course, make sure that directors that could meet physically did so.

31:20

We made revisions to some of the company constitutional documents as well.

31:24

So, minor changes to the memorandum and articles of the companies would, again, provide a little bit of protection, you might say, pure equity holding companies aren't within scope if no income is received. And you'd be absolutely correct with that. However, it's incredibly easy for a company to slip into the scope of economic substance inadvertently during the year. For example, it were to receive income, and of course, by then, it's too late to do anything about it. So, our opinion is very much that best practice is to meet the adequate substance test all the time, in all cases, in the event that the company does potentially fall into the scope of the regulations later on.

32:04

The third and final case study is something that I've put in here, to demonstrate that economic substance is not something that simply applies to large corporate groups. It can easily be neglected when it comes to traditional trust and estate planning structures on the assumption that you've got a trust, you have a few underlying companies. What does it matter for us? Well in this situation, what we have is a trust that's been established for the traditional succession planning and asset protection that you might see within the trust. However, for very good reason, some of which would be IHT mitigation, the underlying assets within the trust would be held through special purpose vehicles, also for segregation purposes, limitation of liability.

32:46

And again, not unusually for a structure like this with high value assets, it's very common to want to leverage against those assets and maybe have a different investment portfolio. And, again, a best practice there would be to have a finance vehicle, so that all of your external lending is in one place and you can manage that.

33:05

Of course, if you do that and if you have financing coming into a structure, then I'm afraid that the finance company does fall firmly within the scope of financing and leasing and does therefore have to comply with the economic substance rules. So, this was something where we had to look at that because, again, we provide a full service to these client structures. We were registered office, directors providing administration to the companies and of course, in this situation, we were acting as trustees of the overlying trust.

33:35

As I said, it's very easy to overlook the structures, and, of course, it's much less likely to be a concern where the trustee and the underlying company directors are provided by the same corporate service provider, because in those situations, you're unlikely to have mixed boards.

33:51

Thus, it's very important to review the procedures and the documentation, because what will often happen in a situation like that is that many of the strategic decisions will be thoroughly documented at the trust level.

34:05

Documentation may not exist to quite such a same extent at the underlying company. So, again, we're not talking about significant changes here.

34:11

We're talking about, as, with economic substance regulations themselves, nothing more than formalization and documentation of what's being done but in this particular situation and across the other trust structures that we administer, what we did was made sure that we have documentation at the appropriate level in the appropriate entity and made sure that those companies could demonstrate very clearly their compliance with economic substance regulations. 

So we finished the specific case studies there. And I think it's important just to conclude with a few of the key takeaways from this. It’s important to remember that the introduction of these global economic substance regulations was very much a response to what were perceived as abusive tax practices using the traditional brass plate or letter box companies. It's really important, therefore, that we're not seen to be simply paying lip service to these new regulations. It's not only the sufficient substance in the documentation of that. It also depends very much on the competence to deliver the services that contribute to the compliance with economic substance requirements.

35:19

What I mean by that is the economic substance itself, or the demonstration of economic substance. It's far more than simply bricks and mortar or employees. Whilst that may well be one of the tests that is applied within the widespread regulations that have been adopted, it's really the degree to which the companies have the economic nexus in a particular company. What that requires is mind and management exercise by staff with the requisite skills, knowledge, and experience to have the confidence that that can be done.

35:52

What that means for us here at IQ-EQ is that we can take comfort in our more than 30 years of experience of delivering these trusted corporate services to our clients here on the Isle of Man and the depth of knowledge, and the qualifications of our staff here, to be comfortable that we're delivering a high level service to our clients that enables compliance with the economic substance requirements, and really lets those clients sleep comfortably at night and the knowledge that the tax assessor in the Isle of Man won't have any problems with their structures.

36:28

30 minutes really isn't a lot of time to talk about such a complex structure as economic substance and many people have been looking at this for years. So I wouldn't profess that Rob or I have done anything more than scratch the surface. And with that in mind, if anybody has anything specific that they wanted to talk through then Rob, Pascal or I would be delighted to hear from you afterwards. But, we also have 15 minutes now,where we can cover off a few questions. And I'm really pleased to see that some of you, at least, have been paying attention, because I can already see that a few questions have come through. So, what I'd like to do at this point is to invite Rob to join me again for a brief Q&A session.

37:07

And we'll take that opportunity to answer any questions that you might have. So, please do keep them coming, and so long as we have the time, we will address any questions that you might have now.

37:17

So, if you'll bear with us, while we just switch from full screen presentation, and as if by magic, Robin, I will be on full screen very shortly.

Well, I'm relieved to see that Rob is there. I had visions of being in the hot seat on my own here, but that's fantastic to see you there, Rob, and thanks everybody for sending through your questions on that. We've obviously prompted a little bit of thought here. So, what we'll do in the next few minutes, we'll run through a few of those, and I'll answer something that may be pertinent to the practical applications, and Rob can answer anything on the more technical aspects. We've got a couple of questions that are quite similar in nature, so I'll put them together. And that is does the introduction of economic substance regulations make the use of International Financial Centres less appealing in the future. And the similar question, very pertinent, does the introduction of economic substance regulations level the playing field, with IFC's. I’ll perhaps take that first Rob, because I think you touched on that during your presentation there.

38:23

Does it make the use of IFC's less relevant, less meaningful? Absolutely, not quite the opposite, in fact, as as Rob confirmed earlier, and I touched on as well, in many ways, the regulations implemented in the Isle of Man are more of a codification. The best practice that we had, it’s something that has been going on for many years, albeit with a few minor revisions.

38:46

But the advantage of the regulations is that what this does is provide much more certainty for clients, for companies, and removes that uncertainty that is such a barrier to business.

38:58

So rather than making the use of IFC's less appealing in the future, I think it actually gives a lot more comfortable with that. Does it create a level playing field? Well not all economic substance regulations are created equal,

39:12

and, you know, Rob gave a few examples in his presentation there of where the situation might arise that some of the implementation has differed very slightly.

39:25

So what we have with that is in the BVI, for example, you don't need to necessarily generate income where in the Isle of Man you do. So it's definitely a lot better and what we've got minimum standards. But I wouldn't say it levels the playing fields by any means. Anything you'd like to add to that Rob before we move on to the next question?

39:47

I think I just echo your thoughts there Craig. There are some mainly subtle nuances between some of the substance regimes that have been introduced.

39:59

So, nothing further than that to add.

40:03

In that case I'll give you a slightly more detailed question for you to answer Rob, and, again, I know you touched on this, but you might like to expand on it very slightly.

40:11

You mentioned about the fact that coronavirus has had an impact, so the question here is has the coronavirus pandemic had an impact on companies’ ability to meet the economic substance requirements and how pragmatic has the assessor been in dealing with that. And just as a follow on when you've answered that one, do you think that maybe there'll be lessons learned from the pandemic that might cause an evolution or some changes to economic substance regulations in the future?

40:43

OK, I guess as I've mentioned, I suspect there have been many situations in which companies' ability to comply with the rules have been hampered by Covid.

40:53

And more often than not, I’d have thought that that's been as the result of the

40:57

inability of off island directors to physically get to their home

41:02

As I have said, the Isle of Man income tax division has not actually gone on the record.

41:07

I think it would be very harsh of them not to show leniency in those situations, and I think it's going to be politically acceptable to do so.

41:15

too, particularly if there's a pre Covid pattern of physical attendance at board meetings, for example.

41:23

You can imagine them being slightly more reluctant to take a pragmatic stance if there has been no sort of prior history of compliant behaviour.

41:33

I think they might find it harder to take a lenient view of situations in which CIGA hasn't been performed locally as a result of Covid. It feels, and I think this is the tax office’s own view,

41:45

does it feel unlikely that the exceptional circumstances brought about by the pandemic would be sufficient in itself to explain why company can't fundamentally justify the level of income that they are generating on the island.

41:57

So, I think we need to be careful when we play the COVID card here.

42:01

But it's not going to work as a kind of a Trump card played in every situation. But I think there are situations in which it makes perfectly reasonable sense, and I would expect the tax office to be lenient.

42:14

In terms of lessons learned, that there might well be tweaks to the rules, as the result of experiences of the last year or so.

42:22

But I don't expect to see any significant changes.

42:25

To be honest, I do think there's maybe some wider tax questions that might come to the fore, which might end up impacting the substance rules.

42:34

I suppose, I am thinking about things like the rise of remote working on video conferencing and how tax authorities view the impact of these change behaviours.

42:43

because, you know, for example, you could take dialling into board meetings, corporate tax residence rules in some jurisdictions, and the UK is one of them.

42:52

will tell you that's a no-no, because you run the risk of being considered a tax resident there.

42:57

Equally, you might find that it causes you to fail a directed and managed test and the substance rules. Say, you don’t physically travel to the Isle of Man for a board meeting, But does that then mean that the tax rules work in a way that encourages, you know, non environmentally friendly behaviours?

43:13

So it forces you to get on that plane for that board meeting and behaviours that are increasingly going to be made technologically obsolete due to the increased attractiveness and ease, frankly, of video conferencing platforms.

43:27

So I think that the wider tax rules, begin to flex and acknowledgement of these wider changes and we might find out the substance rules, follow suit, too.

43:37

So, in a way, I suppose what we're saying is only a couple of years into economic substance regulations, they're already perhaps a little bit out of date as a result of changes that businesses see wider afield, and if not change, we will maybe see a little bit more debate around perhaps the detail of those regulations, particularly where it comes to remote working and flexible working patterns.

43:59

Yes, quite possibly.

44:00

It's not just the substance roles that themselves find it difficult to keep up, but I think it's , as I say, the wider international tax break. Well, that's already gone through a sort of significant upheaval in recent years with, for example, the base erosion and profit shifting project.

44:17

As I say there has been a real and dramatic change to working patterns and behaviours brought about by Covid, which haven't yet really been thought about at international level, and I think will happen over the next year or so. It may influence what happens locally in terms of all of substance regimes.

44:36

Yeah. So I guess the message that would be, please just watch this space and make sure that you're currently up to date with the current application of the regulations. Don't just assume that what worked last year continues to work in the future.

44:51

OK, next question, I'll take this one, Rob because I think is perhaps more of a practical application And I can see how this comes from perhaps some of the other jurisdictions that may look at this as well. Would it solve all of my problems to have a substance offering in the Isle of Man?

45:06

Well, I suppose I should say absolutely. Everybody should come to the Isle of Man office, and have a substance offering here, but in real terms, in practical terms, of course, substance is something that we want to have and physical presence is a very good indicator of that. And if the commercial realities of the business, if the economic realities dictate that there is a requirement for a physical presence for a number of staff in the Isle of Man, then, of course, a substance office, a substance offering, is going to go some way towards ensuring compliance. Is it the only thing that would ensure it? Absolutely not. There has to be, as Rob alluded to, in his presentation, the income generating activities conducted there, there has to be the mind and management, the management and control. And that's not necessarily evidenced just by the employment of a few staff here. So, yes, if it's a requirement of the business and it's commercially viable, then, of course, it's a good idea but

46:03

No, please look at the bigger picture. Make sure that the businesses is actively managed and that the income generating activities are actually conducted from here.

46:15

One more question. I know that we said 15 minutes there. But I'm also mindful of the fact that Pascal said that this overall presentation would only really be 45 minutes. So time is already catching up with this here. So, perhaps, we'll just close with one final question, which I'll address to Rob and then I'll maybe touch on that as well.

46:31

And, again, you did allude to the fact that there are going to be some evolutions and, in fact, you already touched on, perhaps, the introduction of partnerships in Isle of Man economic substance regulations. But the question here is, do you think that the scope of economic substance will increase in the future? And if you can get your crystal ball out, can you see a time when it applies equally in higher tax jurisdictions?

46:57

Yeah, that's a good question. Of course, you mentioned Craig talked about a couple of ways in which the Isle of Man’s

47:02

rules have changed or are about to change in scope to self manage funds and partnerships.

47:10

I guess the only other main way in which you could imagine, the rules, extending, and scope, would be to cover other industry sectors.

47:18

I don't think that's particularly on anyone's radar at the moment, because the other nine selected were considered the most threatening in terms of their sort of geographic mobility.

47:29

But as I say that’s one of the most obvious ways in which they could expand in scope, But I'm not sure that's going to happen anytime soon.

47:38

Substance rules do exist, but in far less, expansive ways in high tax jurisdictions that the concept of economic substance for the tax regime, really started life in the context of so-called preferential tax regimes, which at least initially took the form of carve outs or exemptions or lower tax rates for certain types of activity within a wider higher tax regime. So I don't know if you have come across the UK’s patent box, that's an example of that, that is a preferential 10% tax rate, where

48:11

profits are attributable to patented technologies or processes. The UK

48:18

had to overhaul the patent rules shortly after introducing them, and that was due to EU pressure.

48:24

And that was to ensure the rate was only applicable in situations in which there was sufficient economic nexus with the UK. So, for example, R&D work in connection with the patent had to be carried in the UK. So I suppose what I'm saying is substance rules aren't unique to low and no tax jurisdictions. I think what was unique was the way in which they were applied in our jurisdictions.

48:44

So the EU view was 0% or no corporate tax was, even of itself, preferential not compared to other companies in those jurisdictions, but when compared to tax regimes in other jurisdictions, which is why they've been introduced in the Isle of Man.

49:01

And other countries I mentioned earlier in this much more wide ranging fashion, so I suppose that means I wouldn't expect them to become an international norm, only where a jurisdiction’s main rate of tax is below a certain international law.

49:16

I guess, at this point, a good segway into the separate developments that are happening in the EU, US, OECD level, in relation to the so-called minimum tax rate debate. But this probably isn't quite the form for that, we don’t have time, as you said, and that would probably warrant a whole separate webinar of its own.

49:33

I suppose just briefly touching on that.

49:36

Suffice to say, without trying to spook anyone, this is all in the public domain, that there are plans afoot to try and ensure that at least the very biggest multinational groups are subject to tax on all of their profits, wherever they are generated, where that is by taxing them in the low tax country itself, which would obviously necessitate those countries introducing changes to their rates of tax, potentially, or by ensuring that if say subsidiary companies’ profits are taxed at a lower rate in a particular jurisdiction, that rate is going to be topped up in the jurisdiction of the parent company, for example. So that's not going to affect the vast majority of companies, at least initially.

50:14

As I say, that's probably not on that topic for now.

50:18

I'll pass back to Craig. I'm not sure whether you've got anything

50:22

to add to that.

50:24

Then I suppose just picking out the two key things that I took from that Rob. One is in many ways, I suppose what we're seeing is the economic substance regulations were one targeted set of regulations to deal with that. And in many ways, there were already existing things, such as the UK's patent box regulations, even transfer pricing to a certain extent.

50:43

and so what we may see is more of an alignment and correlation of those regulations in the future, but not anytime soon.

50:52

And then, in terms of the extension of the regulations, they've tackled the higher risk areas. It's unlikely that we'll see any rapid changes shortly. But we've always said that complying with the regulations as best practice in any case, so actually provided it doesn't cause undue burden on companies, it's well worth ensuring it is as close to compliance as possibly even if you're not firmly within scope. So that's maybe the belt and braces approach just to be safe there.

51:21

Well, as I said, the clock has unfortunately beaten us there. So I do apologize if we didn't get around to your question. But I said earlier, if you have any burning questions that we didn't answer now or that crop up afterwards, please do contact Pascal, Rob or me. We'd be delighted to speak to you at a later date. In the meantime, I'd just like to close by thanking everybody for your time and attention today. Do look out for the next webinars in this series. We've had the Netherlands, Switzerland and the Isle of Man so far, and there will be other jurisdictions coming up shortly, So keep an eye out for that. And in the meantime, thank you. And enjoy the rest of your day.

 

Second Q&A session 

37:34

I'm pleased to see that Rob has been able to rejoin me there so that I'm not on my own to to answer these questions. And thanks to those of you who have submitted some questions for this. Rob, the first question seems to be prompted by the fact that you had listed on there the other countries that had implemented economic substance regulations. and the question is simply this: are there any material differences between the Isle of Man rules and those in Jersey and Guernsey, or are they materially the same?

38:18

The Isle of Man's rules are very similar to those in Guernsey and Jersey. There are some subtle differences in the way in which some of the sectors defined, but in terms of the way the substance test itself works, or the three associated tests work,

39:01

they work very similarly to here, but there's more of a contrast between this side of the Atlantic and the other.

39:10

So, you might find that the Cayman Islands rules, the BVI rules, the Bermuda rules, all look a bit similar to one another, and perhaps have slightly more fundamental differences to the Crown dependencies rules. And as I mentioned one of those which is quite a key one really, this side of the Atlantic we tend to focus on the income requirement, where as that is not necessarily the case 

39:33

in some of the Caribbean jurisdictions where they don't always have that which, I think as I mentioned, this strikes me a little bit peculiar, given what these roles are trying to achieve.

39:43

And let's be honest, I think, in that case, our rules are better or more commercial or pragmatic. So, you'll find depending on what you're looking for, and depending on your exact circumstances, you will find that the rules don't work exactly the same in any of the jurisdictions, but I'll probably draw a dividing line more down the middle of the Atlantic than between us and our counterparts in the Channel Islands.

40:07

So, that's a very useful summary. Thank you for that Rob. I'll give you a break from entering I’ll maybe pick up the next question, which is, does the introduction of economic substance regulations make the use of international financial centres less appealing, and just the introduction, also, level the playing field, within IFC's? In answer to the first one, no, absolutely, not. IFC's are as relevant as ever, if not even more so.

40:35

So in terms of whether IFC's are still as relevant, what the regulations have done is simply codified what we were doing in the past and raise the standards across the board. So it’s providing companies with certainty and a lot more clarity on what is expected for them to be seen to be fully compliant. As to whether it's a level playing field is certainly a step in the right direction. But, I think you indicated very clearly on there Rob that there are still differences in the local regulations, albeit that as we know that the Crown Dependencies are much the same. But what that does this mean, though, is that it's not entirely level, but it's certainly a lot closer than that it was in the past.

41:31

OK, next question is, and this is one for you, I think, Rob, if I can get the question up here, is, I'm sorry this is a slightly detailed question.

41:42

I'm afraid, but it's in relation to a charter company, a yacht charter company,

41:50

And if a charter company has chartered a yacht just four times a year, does it still fall within the scope of economic substance regulations, and if so, would it actually be better in the Cayman Islands based on the information that you were sharing earlier?

42:06

So sorry, slightly detailed one there Rob, but a very good one, nonetheless.

OK. Yeah, I think that there are two possible relevant sectors that that structure might need to think about the application of when it comes to the substance rules and one is

42:22

the obvious one, shipping, but certainly in the Isle of Man, I can't speak for the Cayman Islands, but I'm also fairly sure that in the Channel Islands the rules are similar to ours in the sense that the scope of the shipping relevant sector doesn't apply to pleasure craft.

42:42

So assuming that’s what this yacht is, and that's what most yachts are, let's face it, you probably don't have to worry about the application of the substance rules to the shipping sector. You are probably more thinking about the finance and leasing relevant sector.

42:57

Again, there's no easy answer, because it often it does come down to the precise facts of the case.

43:04 

But typically, if the yacht's been made available on what you might call an operating lease.

43:12

regarding a finance lease, and, I'm sorry to get all accountant technical with you, then, certainly, from an IOM perspective, if you have what looks like an operating lease, then you probably wouldn’t expect that to be within the scope of the substance rules.

43:26

Whereas if you have what looks more like a financing lease then you might well have more of a problem. So, I think that's the place to start. It sounds like you could probably do with some specific advice on the detail of that one, but that's where I would start looking, in terms of answers to that question.

43:45

That sounds like the perfect question doesn’t it Rob. It’s some good summary information there, but as always, take advice.

43:54

Right. The next one is a very good one and again you touched on the fact that the coronavirus pandemic had clearly had an impact on certain companies’ abilities to meet the regulations. Even though the Isle of Man as a jurisdiction has a lot of flexibility in the way that meetings can be held, filings, etcetera, but nonetheless issues have been there. So the question here is, has there been any feedback on whether penalties would be applied to companies that haven't been compliant, but have actually taken steps to resolve the position during 2020? And specifically has there been feedback from the Isle of Man tax division on that?

44:34

I mean, the short answer is no, there hasn't yet. We've had separate conversations as you might expect with the tax office about mass principle and about particular cases too.

44:48

I think if we're talking about the impact of Covid in particular, then certainly I would very much expect the local tax authorities to take the view that if prior to Covid there was what you might call a compliant pattern of behaviour.

45:01

So people will get on the plane and come over to board meetings in the Isle of Man. Therefore, you are satisfying the directed and managed test prior to Covid.

45:13

And Covid put a stop to that, despite your best efforts, that's not possible well, I would fully expect the tax authorities to take a sympathetic view of that.

45:23

It might be different if you don't have that preexisting pattern of good behaviour, so to speak. So, if you're trying to argue that Covid stopped you doing something that you weren’t previously doing, then, of course, that might be a slightly more uphill battle, albeit you still might be able to demonstrate that you always had planned to make those sorts of changes in 2020, but for, for obvious reasons, those were those were scuppered.

45:46

But so I think that the tax division will be mindful of that, certainly when it comes to the directed and managed test.

45:55

I would echo that, it is very much the experience that we would have had as well, that the tax office are being as flexible as they can be with that. But nonetheless, the regulations are there and are clear for everybody. So, provided you were compliant before and are making efforts then hopefully we'll see a degree of leniency. There is a related question as a follow-up to that, which is, do we think that any of these lessons learned and impacts of the pandemic might result in future changes in ESR legislation? And I know that we've discussed this ourselves in the past Rob, where it's very difficult to say isn’t it. It's early days to see whether it would result in direct changes.

46:36

You know, certainly, I think in the short term, we can expect to see maybe some flexibility in the application of the regulations whilst everybody comes to terms with the impact. And, again, maybe it's more of a broader impact on tax legislation and how companies are expected to operate. But I personally can't see any direct changes coming to the regulations as a result of this. I don't know whether you would have any similar or different views with that?

47:05

I think I have very similar views to yours that you just expressed Craig because I’d find it amazing if across the board these rules started to be subsequently and significantly tweaked as a result of Covid. But I guess my one caveat to that would be that there are some of these rules are very much based on preexisting tax rules rather than economic substance rules.

47:31

So, there are lessons to be learnt for the wider international tax framework, then that might be more the implications, and the issues that have been created by the right of remote working and video conferencing, and how tax authorities view the impact of those

47:50

changed behaviours, because, I've just talked about, you shouldn't really dial into board meetings if you can help it. Not only does that potentially give you corporate tax residence issues in some jurisdictions, and the UK is one of them,

48:04

That is also likely to be unhelpful, in order to satisfy the directed and managed test and the economic substance rules.

48:12

But if you think about that to its logical conclusion, does that mean that the tax rules are working in a way that encourages people to act in a non-environmentally friendly way? So, if you're only getting on that plane, for that board meeting, because of the economic substance rules, or the tax residence rules, or a combination of the two, then is that right? Should the tax rules work in those sorts of ways? So, those have always been thoughts that tax authorities around the world have had, but they have probably never been forced to take different views on them.

48:45

Whereas given, as I say, the increased likelihood of people not only not physically making meetings in person, because of the rise of technological platforms that allow video conferencing, I'm not sure that's going to stay the same. So if those wider tax rules change, then I would expect that to be some sort of trickle down effect onto the substance rules.

49:05

I would agree with that and in my brief case studies, I did touch on some of the changes that we've made to try to avoid any inadvertent problems with that. But what would hopefully be the case there is even where companies have implemented that the tax authorities around the world will maybe take notes of, as you say, the environmental impacts, the changes in working practice. And I don't think we'll see wholesale changes, but we may see some refinements and adapting to modern practices.

49:33

Well, I'm very conscious that time is moving on.

49:35

So we've probably got time for just one more question here, and this, in many ways, it's the $64,000 question, and that is, do we think that the scope of economic substance will increase in the future? You gave us some examples of that Rob with the extension to scope in the Isle of Man and elsewhere to partnerships. But can you see it expanding beyond that as well?

49:58

Yes, I mean, if you think that once partnerships and self-managed funds are in scope, there are not really any or many other types of entity that it can be extended to.

50:09

So it's really just a question of whether there's an appetite to increase the scope of the rules to other relevant industry sectors. The nine that were picked initially were those that were considered to be most at risk of capital flight, because they're most deemed to be sort of geographically mobile, and therefore potentially more subject to base erosion and profit shifting.

50:32

So, there's nothing on the radar, as far as I'm aware, that would suggest that there are further industry sectors that are falling within the EU’s or the OECD sights. So I'm not sure that we will see them expand at least anytime soon.

50:48

Whether they'll be sort of brought more into fashion in some of the more higher tax jurisdictions around the world, I suspect, not because, in fact, the economic substance rules had their genesis in high tax jurisdictions where they were initially targeted at what would happen to preferential tax regimes. So you might come across the UK patent box.

51:14

So that is sort of targeted set of economic substance rules in the sense that you can benefit from the UK’s patent box, which is an effectively lower rate tax on certain types of income.

51:23

If you have sufficient economic substance in relation to that patented technology in the UK, so the economic substance rules aren't new, but just the way in which they have been applied across the whole economy or jurisdiction like they have in the Isle of Man and some of these other 2.2 jurisdictions is the new bit I suppose.

51:43

Reassuring to hear from our tax experts as well, that basically, in those circumstances, it is unlikely that we will see any wholesale extensions there. I think from a practical perspective, from somebody that's living and breathing these each day, for the client entities.

52:00

What I would say with that is that whilst there are no obvious signs of an extension to different industry sectors, nonetheless, it is still best practice provided it is commercially sensible to comply fully with the economic substance requirements as possible, so, belt and braces, be prepared for the worst and the best.

52:22

Awkward that it is live as our fire alarm is just going off. Sounds like a great opportunity to bring this to an end and

52:34

close with that. I do apologize if we haven't had an opportunity to get around to answering questions.

52:40

If that is the case, if you've got any burning questions that we haven't answered, if anything crops up in the coming days, please do get in touch with Rob, with Pascal or with me and we would be delighted to talk to you.

52:50

and discuss this in a little bit more detail.

52:54

But hopefully, today has proved useful with that. What we will also be doing is writing out to everybody today who's attended or registered for this, providing a link to be able to re-watch the presentation. I'm sad to say, that it isn't the Director's extended cut or previously unseen footage. It is just the same as today, but do feel free to share that with any of your colleagues who perhaps couldn't make it and would be interested in learning a little bit more about this. So suffice to say thank you very much to everybody who has joined us today. I hope that you found it very useful, and, as I say, please do get in touch at anytime in the future if you have any questions. Other than that, I will simply thank everybody for their attendance. Thank you, Rob, for joining me to present this.

53:46

Enjoy the rest of your days, so thank you, everybody.