OECD’s mandatory disclosure regime (MDR) in Jersey – DO NOT FORGET

Introduction

On 31 December 2019, the Minister for External Relations lodged with the clerk to the States assembly the Draft Taxation (Implementation) (International Tax Compliance) (Mandatory Disclosure Rules for CRS Avoidance Arrangements and Opaque Offshore Structures) (Jersey) Regulations 2020 that will introduce the OECD’s mandatory disclosure regime (MDR) in Jersey.

https://statesassembly.gov.je/assemblypropositions/2019/p.129-2019.pdf

This follows a consultation earlier in 2019 and a political commitment given to the EU Code of Conduct Group in 2018 that Jersey would introduce an MDR by the end of 2019.

The draft regulations generally follow the OECD model rules in this area AND NOT the broader EU model in Council Directive (EU) 2018/822 (enacted as DAC 6). https://eur-lex.europa.eu/eli/dir/2018/822/oj

The regulations will require Jersey based "intermediaries," and in certain cases those adjudged to be reportable taxpayers benefitting from opaque offshore structures and/or the use of Common Reporting Standard (CRS) avoidance arrangements, to report certain information about those arrangements and structures to the Comptroller of Revenue (Comptroller).

In turn, the Comptroller will exchange information relating to users of such reportable arrangements resident in another jurisdiction to the tax authority of that jurisdiction in accordance with the terms of the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (CRS MCAA) that requires the automatic exchange of information regarding CRS avoidance arrangements and opaque offshore structures.

1. http://www.oecd.org/tax/automatic-exchange/international-framework-for-the-crs/multilateral-competent-authority-agreement.pdf
2. The regulations are broadly in line with expectations following the end of the consultation period that ran to 15 November 2019, and will be supplemented by guidance notes to be released by the Comptroller in due course.

This article summarizes key aspects of:

The scope of the regulations and their application to structures in Jersey;

The requirements imposed on intermediaries in terms of identifying impacted structures and making the appropriate disclosures to the Comptroller; and

Next steps in terms of ensuring compliance with the regulations for intermediaries and reportable arrangements.

Key aspects of the regulations

The regulations will affect arrangements or structures that it is "reasonable to conclude" are (as defined in the regulations) either a "CRS avoidance arrangement" or an "opaque offshore structure" (together the "reportable arrangements"). Arrangements still may be reportable arrangements even if the beneficiaries of such arrangements are not Jersey resident.

A CRS avoidance arrangement is defined as

1. "any arrangement for which it is reasonable to conclude that it is designed to circumvent or is marketed as, or has the effect of, circumventing the CRS Regulations or exploiting an absence of legislative provisions in relation to the CRS ….".
2. An opaque offshore structure is defined as a

• "passive offshore vehicle that is held through an opaque structure’ and encompasses structures for which it is ‘reasonable to conclude’ that it ‘is designed to have, is marketed as having; or has the effect of allowing, a natural person to be a beneficial owner of a passive offshore vehicle …" without the accurate determination of the identity of the natural person.

In determining whether the beneficial ownership of a structure is being obscured, the Comptroller will look at such factors as:

1. The use of nominee shareholders with undisclosed nominators;
2. The use of means of indirect control beyond formal ownership; and
3. The use of arrangements that provide a reportable taxpayer with access to assets held by, or income derived from, the structure without being identified as a beneficial owner of such structure.

The regulations provide that the following structures/entities would not be caught as opaque offshore structures:

1. Entities that carry on substantive economic activity in the jurisdiction in which they are established or tax resident;
2. Institutional investors or entities that are wholly owned by one or more institutional investors; or
3. Where all beneficial owners of the structure are tax resident in the same jurisdiction as the structure.

Guidance on the interpretation of the "reasonable to conclude" standard is to be published by the Comptroller in due course.

Under the regulations, in the first instance, the reporting obligation rests with those Jersey resident, Jersey established persons, or entities with Jersey offices that are considered to be "intermediaries" to reportable arrangements. Persons in this context can mean an individual, company, or partnership.

Intermediaries fall into two categories:

1. Promoters – persons involved in the design and/or marketing of reportable arrangements; and
2. Service providers – persons providing "relevant services" in relation to a reportable arrangements where the person could "reasonably be expected to know" that the arrangement or structure is a reportable arrangement.

The expression reasonably be expected to know will be determined by reference to the service provider’s actual knowledge based on readily available information and the degree of expertise and understanding required to provide the relevant services.

A relevant service means providing assistance or advice in respect of the design, marketing, implementation, or organization of an arrangement or structure.

Reporting must be made to the Comptroller no later 30 days after the intermediary:

1. Makes the CRS avoidance arrangement or opaque offshore structure available for implementation; or
2. Supplies relevant services in respect of the CRS avoidance arrangement or opaque offshore structure.

Retrospective reporting is not required for intermediaries that are service providers (i.e. reporting only is required where a service provider provides relevant services to a reportable arrangement after the regulations have come into force).

Promoters will be required to disclose, within 180 days of the regulations coming into force, CRS avoidance arrangements that have a total aggregate financial account balance value of at least GBP 600,000 that were implemented on or after 29 October 2014 up to the date on which the regulations come into force.

1. Schemes entered into after entry into force must be reported in the normal 30-day window. If information is reported late, the person with a duty to report could be liable to a penalty of GBP 3,000.

Information to be reported (disclosure information) includes:

1. The name, address, jurisdiction, and tax identification number (TIN) of:

• the disclosing intermediary;
• the client in respect of the reportable arrangement;
• the actual user of a reportable arrangement; and any person that is an intermediary to that transaction (other than the person making the disclosure);

2. Factual details of the reportable arrangement; and

3. The jurisdiction where the reportable arrangement has been made available for implementation.

The regulations specify certain situations where an intermediary is not required to disclose, including where reporting has been completed by another intermediary and documentary evidence of such reporting having taken place exists.