Michael Calleja | Senior Compliance Services Executive | Malta As we find ourselves in that pivotal time of year where subject persons traditionally undertake the important task of updating their Business Risk Assessments (BRAs), Customer
Economic Substance – in practice, and not just in theory.
Aspida’s expertise in all things Economic Substance, and vast experience of helping clients demonstrate substance, means we more than just talk the talk on this hot topic. Our Substance Guru Richard Bray tells us more about Aspida walks the walk on substance issues
Back in 2002 a London based family was looking to set up an office and base of operations in Guernsey. The Guernsey company needed to establish a regulated advisor in London in compliance with the requirements of the FCA and with HMRC’s Investment Managers’ Exemption. The family were introduced to Wayne Bulpitt, Wayne told them how it could work and Active Group was borne.
Fast forward a year or three and we are speaking with the HMRC; this is our model, this is how we operate, this is how we demonstrate mind and management in Guernsey, this is the fee structure. Does this work? HMRC agreed it did.
Looking now at Guernsey’s new substance legislation (properly known as The Income Tax (Substance Requirements) (Implementation) Regulations, 2018), we see people offering tick box solutions to testing your compliance with the law. This is rather worrying as we know, based on 16 years of experience, that substance is not a tick box exercise.
There may be some items on a tick box you can ‘tick’ – identifying your Core Income Generating Activity (“CIGA”), being in scope of the legislation, or number of Board meetings being held in Guernsey for example, but the real underlying evidence of whether or not you have substance comes down to value judgements on the evidence you can supply around the mind and management topics; evidencing activities such as decision making, and oversight of outsourced activities. It is these points that truly demonstrate mind and management over the CIGAs.
It is worth re-iterating that point – substance is not, nor should it ever be, a tick box exercise. To copy one of the recent Data Protection mantras, substance should be incorporated into your operations ‘by design and default’. Providing substance should be built into the very essence of your service delivery. By extension, substance should not therefore be proved only through quarterly minutes, but by the day to interactions that demonstrate engagement with and oversight and control of the CIGAs. In short substance must be in your culture.
At Aspida Group, our very genesis was the provision of substance suitable to meet the rather exacting demands of HMRC and the Regulators. As a result, the provision of substance is built into the very fabric of our being. When we talk substance, we know what we are talking about. We have lived substance for the last 16 years, not just studied the Guernsey legislation since it was released last year!
The cost of failing to properly provide substance is far more than the penalties and fines written into the legislation – onerous though they may be. Not properly delivering substance could move the perceived tax domicile of the company to a different jurisdiction, resulting in far greater costs to the client and opening you to potential litigation. It is thus clearly important to know that your substance delivery works, hence the growing demand for substance audits.
So when you are looking for someone to perform an audit on your substance delivery who should you ask? Someone who has looked at the theory? Or who someone who has lived and breathed substance for 16 years, been reviewed by HMRC and found to be delivering substance as required?
There is really only one substantial answer – call Aspida.
Michael Calleja | Senior Compliance Services Executive | Malta Introduction Sanctions serve as a pivotal instrument in the international legal arsenal, utilized by nations and international coalitions to enforce legal standards, safeguard national interests, and
Corporate Social Responsibility has been at the very core of Aspida Group since its beginnings. Over the past year, Aspida Group has been committed to making a difference in the community through our Corporate Social