Economic Substance – What Does It Mean For International Financial Centres?

The latest move by the European Union to address perceived harmful tax practices takes the form of imposing economic substance requirements on international financial centres (IFCs). In response, rather than face EU blacklisting, the majority of IFCs have recently introduced legislation mandating substance requirements for certain entities based in their jurisdictions.

THE DRIVE FOR SUBSTANCE

Notwithstanding the fact that the majority of the affected jurisdictions have already met the OECD standards for transparency, Base Erosion and Profit Shifting (BEPS), FATCA, Common Reporting Standards (CRS) and country-by-country reporting, by imposing economic substance requirements the EU has once again taken aim at low-tax jurisdictions.