GBGC wrote recently about the new global trends in taxation which are being introduced by governments to ensure that companies’ profits are taxed. Governments’ intention, through organisations like the OECD, is to prevent companies creating structures that let them avoid tax by claiming to be based in a jurisdiction that offers a tax advantage. One central concept in these new tax initiatives is that of “substance” and it could determine how the world’s offshore tax jurisdictions will look in the future.
A key question in determining where a company should pay various taxes will be “Does a company have substance in the jurisdiction where it claims to be based?” Substance could be measured by numbers of staff, real operations, economic activity or value creation – the last two of which could be open to interpretation and dispute. If a company is not deemed to have substance in a jurisdiction where it claims to be based then other governments could arbitrarily take the view that it is avoiding tax and instead has a permanent establishment in the country where it is actually “doing business” and will be liable for local taxes accordingly.
Firstly, the article states that part of the success has come because the local government “has made an effort to take Ibiza upmarket and encourage high-end enterprises”.
The modern lifestyle of the entrepreneur is also being aided in Ibiza by the building of “new lock-up-and-leave properties” in the island as well as international schools and colleges, including one that teaches the UK curriculum and the Collège Français d’Ibiza, which is partly funded by the French government.
Caroline McGhie, 23 March 2015