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Changes to Economic Substance for Partnerships in Jersey

Insight 7 June 2021

Changes to Economic Substance for Partnerships in Jersey

On 18 May 2021, the Jersey Government put forward draft legislation which proposes to bring certain partnerships in the scope of economic substance requirements.

The reason behind these changes lies behind a review by the EU Code of Conduct Group to ECOFIN in November 2020[1], which singled out several jurisdictions[2], including Jersey, with the need to extend their economic substance requirements to include relevant partnerships.

What is meant by partnerships?

Jersey

  • Incorporated Limited Partnerships established in accordance with the Incorporated Limited Partnerships (Jersey) Law 2011.
  • Limited Liability Partnerships registered under the Limited Liability Partnerships (Jersey) Law 2017.
  • Limited partnerships established in accordance with the Limited Partnerships (Jersey) Law 1994.
  • Separate Limited Partnerships established in accordance with the Separate Limited Partnerships (Jersey) Law 2011.
  • Foreign Limited Partnerships established under the laws of a jurisdiction outside Jersey and which consists of one or more persons who are General Partners and one or more persons who are Limited Partners.
  • Any other arrangement that is subject to an assessment under Article 74 of the 1961 Law.

The Jersey authorities proposed exclusions from the inclusion in scope of partnerships. These are proposed and it remains to be seen whether they will be included in the final regulations.

Exclusions

  • Collective investment funds (as defined in the Collective Investment Funds (Jersey) Law 1988);
  • Funds that would be collective investment funds except that the offer of units in the fund is not an offer to the public (within the meaning given in Article 3 of the Collective Investment Funds (Jersey) Law 1988); or
  • Funds that

o    are not for the purpose of securitisation or repackaging of assets, and

o    would be collective investment funds except that the fund is prescribed not to constitute a collective investment fund in an Order made for the purposes of Article 3(7) of the Collective Investment Funds (Jersey) Law 1988.

[1] Source: https://data.consilium.europa.eu/doc/document/ST-13151-2020-INIT/en/pdf

[2] Anguilla, Barbados, Bermuda, British Virgin Islands, Cayman Islands, Guernsey, Isle of Man and Jersey

It is important to note that the disclosure requirements, if applicable, would apply to partnerships rather than underlying Limited Partners.”

Lisa Aune
Lead Director, Corporate Services

Only those that undertook “relevant activities”, which are listed below, during the reporting year and which received an income from the relevant activity during that reporting period:

  • Banking business
  • Distribution and service centre business
  • Finance and leasing business
  • Fund management business
  • Headquarters business
  • Holding partnership business
  • Insurance business
  • Intellectual property holding business
  • Shipping business

A partnership will meet the economic substance test in relation to a relevant activity if:

  • Partnerships in existence as of 30 June 2021 --> Accounting periods commencing on or after 1 January 2022
  • All other partnerships --> Accounting periods commencing on or after 1 July 2021

The draft legislation contains two types of penalties:

  • £10,000 for a financial period without prior failure to meet the economic substance test, and
  • £50,000 * (A + 1), where A is the number previous consecutive financial periods, immediately before the financial period the penalty relates to, in which the Comptroller has notified the partnership of its failure to meet the economic substance test.

If you would like to speak to a Director to discuss how Sanne can assist you and your business, please reach out to Lisa or Paul directly.

Let's talk...

Final legislation expected in the coming weeks.

Corporate Services
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Lisa Aune Lead Director - Jersey
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Paul Séjournant Associate Director, Product Development - United Kingdom
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