The Action Plan on Base Erosion and Profit Shifting (BEPS Action Plan) identified 15 actions to address BEPS in a comprehensive manner. In October 2015, the G20 Finance Ministers endorsed the BEPS package including the report on Action 5: Countering Harmful Tax Practices More Effectively, Taking Into Account Transparency and Substance. The Report is one of the four BEPS minimum standards, which are followed by all members of the Inclusive Framework on BEPS. Each of the four BEPS minimum standards is subject to peer review in order to ensure timely and accurate implementation and thus safeguard the level playing field. There are two aspects to the Action 5 minimum standard: a process for reviewing preferential tax regimes to ensure they are not harmful, and a transparency framework that applies to tax rulings.
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The Cayman Islands is a member of the OECD Inclusive Framework on BEPS and it has enacted the Economic Substance Law in response to requirements for geographically mobile activities to have economic substance developed under BEPS Action 5, consistent with the European Union timeframe to have such requirements in place on 1st January 2019. Recently on 3rd May 2019, the Economic Substance Guidance v2.0 has been approved.
The latest Economic Substance Guidance clarifies and amends certain definitions in order to comply with the requirements of the OECD Forum on Harmful Tax Practices (‘FHTP’) and the EU Scoping Paper. For example, it clarifies that the definition of ‘relevant income’ means that it [in relation to an entity, means that all that entity’s gross income from its relevant activities and recorded in its books and records under applicable accounting standards.]
Other clarified terms under the Cayman law include:
Cayman Islands core income generating activities
Consolidated Financial Statements
Constituent Entity
Domestic company
Fund management business
Group
High risk intellectual property business
Investment fund
Pleasure vessel/pleasure yacht
Shipping businesses
Territorial waters
For the original legal text, please visit http://www.gov.ky/portal/pls/portal/docs/1/12788483.PDF
Global Connect Admin B.V. | Yichuan Qiu
