From 1st July 2021 all Partnerships will be considered in scope for economic substance regulations (subject to a few exemptions).
Legislation and updated guidance is expected to be published in due course and is currently under review.
Similar to companies, whether the Partnership carries out any relevant activities and whether it receives income from those relevant activities during the financial period will determine whether it will need to comply with the economic substance regulations.
The relevant activities in question are:
- Fund management
- Finance and leasing
- Headquartering
- Distribution and Service Centres
- Banking
- Insurance
- Shipping
- Pure Equity Holding
- Intellectual Property
In scope Partnerships will need to will need to demonstrate that they:
- Are directed and managed in Guernsey
- Conduct all core income generating activities in Guernsey
- Have sufficient qualified personnel, a physical presence and adequate operating expenditure in Guernsey
To determine whether a partnership is directed and managed in Guernsey the following definition has been add to the regulations to assist with this.
“A partnership’s place of effective management is the place where key management and commercial decisions that are necessary for the conduct of the partnership’s business as a whole are in substance made”.
When do the economic substance regulations apply to partnerships?
For partnerships existing on 30 June 2021, these economic substance rules will apply to the first financial period commencing on or after 1 January 2022.
For partnerships established from 1 July 2021 onwards, these economic substance rules will apply to every financial period of the partnership.
Tax returns for Partnerships
Partnerships have not previously needed to submit a tax return in Guernsey, however now they are in scope for economic substance they will be required to register with Guernsey Revenue Service and complete a tax return annually. They must also produce financial statements and these will need to be filed with the tax return. The tax return will collect data on the applicability of the economic substance regulations and evidence will need to be reported to demonstrate they are compliant.
Penalties for non-compliance with Economic Substance Regulations
Similar to Companies, failure to report or to meet the substance requirements regulations will result in financial penalties, automatic exchange of information with other tax authorities where relevant and eventual ‘strike-off’ of the Partnership should non-compliance continue.
Needless to say an understanding of the rules, regulations and legislation when administering any entity is becoming increasingly important. Parish Group endeavour to stay abreast of all the changes and bring them to our clients’ attention at the earliest opportunity where they apply. We help guide our clients in today’s complex world of compliance with many different regulations and whilst we do not give specific advice we can recommend an appropriate tax advisory firm to assist should this be necessary.
