Further to our previous update1, the Department for International Tax Cooperation ("DITC") has issued an Industry Advisory2 on 12 November 2020 (the "Advisory") in relation to Economic Substance ("ES") matters.
ES Sample Returns and Form
The Advisory contains the following sample ES returns and updated form (collectively the "ES Returns"):
(a) Sample Economic Substance Return3;
(b) Sample Economic Substance Return for Pure Equity Holding Companies4;
(c) Sample Economic Substance Return showing the additional questions for High Risk IP Companies5; and
(d) Updated Form for Entity Tax Resident in Another Jurisdiction (Sample)6.
The Advisory includes a link to notes7 published by the DITC, which explain the purpose of the ES Returns and provide a high-level overview of the required data points.
Each ES Return (including any attached supporting documentation) will be considered in its entirety by the Tax Information Authority (the "Authority") before making a determination as to whether or not the economic substance test (the "ES Test") has been passed or failed. Where an entity is flagged as at risk of failing the ES Test, the Authority may contact the entity to request additional information.
A summary of the ES Test requirements can be reviewed in our Cayman Islands Economic Substance Requirements for Certain Entities Legal Guide8.
DITC Portal Opening for ES Functionality
ES Returns can only be completed via the DITC Portal. Functionality for the submission of ES Returns is expected to be launched in the coming weeks. An ES Portal User Guide will also be made available on the DITC website at this time.
In the meantime, "Responsible Persons" identified by entities in their Economic Substance Notifications ("ES Notifications") can expect to receive an email from the DITC providing an access link for use once the DITC Portal goes live for filing of ES Returns.
Further information on the process for outsourced service providers to register via the DITC Portal will be released in due course.
Extended Reporting Deadlines
In respect of this reporting year only, the Advisory notifies that ES reporting deadlines have been extended as follows:
(a) For Relevant Entities carrying on intellectual property business - 31 January 2021;
(b) For all other ES Returns (including the Updated Form for Entity Tax Resident in Another Jurisdiction) - 28 February 2021; and
(c) In respect of any reporting deadline falling due after 28 February 2021, the deadline continues to remain at 12 months after the end of the financial year, i.e. no change.
Penalty for Late Filing of ES Return
Under the International Tax Co-operation (Economic Substance) Law (2020 Revision) (the "ES Law"), a late penalty filing fee of US$6,098 can be imposed together with an additional penalty fee of US$610 for each day an ES Return continues to remain outstanding.
It is an offence for a person to knowingly or wilfully supply false or misleading information to the Authority under the ES Law. Such an offence is punishable on summary conviction by a fine of US$12,195, or imprisonment for a term of five years, or both.
Where an offence under the ES Law committed by a body corporate is proven to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of any director, manager, secretary or other officer of the body corporate, or any person who was purporting to act in such a capacity, the officer or any person purporting to act in such capacity, as well as the body corporate, commits that offence and is liable to be proceeded against and punished accordingly.
Where the affairs of a body corporate are managed by its members, the foregoing shall apply in relation to defaults of a member in connection with the member's functions of management as if the member were a director of the body corporate.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.