COVID-19 Challenges The ‘Substance’ Of Economic Substance Rules

To avoid being blacklisted as having harmful tax practices, several international financial centres (IFCs), including in the Caribbean, have passed legislation imposing economic substance requirements on tax resident companies carrying on ‘relevant activities’. Such substance requirements are to ensure that geographically mobile businesses are taxed where genuine economic activity is taking place and value created. But, given the on-going novel coronavirus disease 2019 (COVID-19) pandemic, many jurisdictions have had to release guidelines for tax resident companies on how to meet these substance requirements, such as the requirements for physical meetings in an environment where social distancing, lockdowns, and travel restrictions have become the norm. COVID-19 raises questions as to the suitability of requiring physical presence at meetings given contemporary realities.

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