Aside from more complicated tax returns, Guernsey’s new economic substance requirements which apply to insurance companies - and by extension captives - are not seen as particularly burdensome.
This is according to a panel speaking at Guernsey Finance’s captive insurance microevent in London on April 9. Speakers include Kate Storey, partner at Walkers Global; Mark Savage, tax director at BDO, and Peter Child, managing director at Artex Risk Solutions.
On March 12, the Economic and Financial Affairs Council (ECOFIN) confirmed that Guernsey is a cooperative jurisdiction with respect to tax governance.
To test for economic substance in Guernsey, the tax office will generally examine whether a Guernsey tax resident company is directed and managed in Guernsey; whether it has adequate people, premises and expenditure in Guernsey, and whether its core income generating activities (CIGA) are within the jurisdiction.
The panel highlighted that captives are able to outsource much of the captive’s CIGA - for example - underwriting, reinsurance, and overall captive management to Guernsey - which has a wealth of insurance managers and service providers.
At least one Guernsey resident will have sit on a captive’s board of directors, and board of directors must be held at adequate frequency in Guernsey.
Storey argued that the new requirements “really aren’t a big deal for Guernsey licensed insurers”, due to pre-existing regulatory regimes which impose regulatory substance requirements as part of the minimum criteria for licensing.
However, failure to meet substance requirements in the domicile will lead to Guernsey insurance companies (and captives) facing potential sanctions.
“Regulations have no teeth without sanctions,” said Savage.
First time offenders face a £10,000 fine, along with a spontaneous exchange of information between the company, the Guernsey tax office, and the EU. Further noncompliance can raise these fines to £50,000 and eventually £100,000, with the possibility for the company to be struck from Guernsey’s Rister of Companies.
Guernsey Finance, Economic substance, European Union, Guernsey