In the face of travel restrictions and lockdowns imposed globally to contain the spread of COVID-19, several domiciles have issued guidance around how entities can still comply with legislated economic substance requirements.
Law firm Conyers, in a briefing, notes that some such requirements include holding a certain number of board meetings with a quorum and majority of those voting physically present in the jurisdiction.
The regulatory authorities in Bermuda, the Cayman Islands and the British Virgin Islands have issued guidance notices on this matter, acknowledging the current extraordinary circumstances and outlining circumstances that will be taken into account when assessing compliance with economic substance requirements.
In the case of the Cayman Islands, on 21 March 2020, the Cayman Islands Ministry of Financial Services issued an industry advisory in which it noted that where board of director meetings are required to be held virtually due to the measures put in place to combat COVID-19, the Cayman Department for International Tax Cooperation (DITC) will take this into consideration when determining whether an entity has passed or failed the economic substance test in its reporting due in 2021.
However, it also noted that the requirement to be directed and managed in Cayman is only one element of the economic substance test and that an entity that is within scope is also required to conduct core income generating activities in relation to its relevant activity.
The deadline for entities required to make an economic substance notification for the past financial year has been extended to 30 June.
Conyers, Cayman Islands Ministry of Financial Services, Cayman Department for International Tax Cooperation, Coronavirus, Bermuda, Cayman Islands,