s.8Failure to satisfy economic substance test
8
Section 8Part 0 —

Failure to satisfy economic substance test

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If the Authority determines under section 6 that a relevant entity that is required to satisfy the economic substance test in relation to a relevant activity has failed to satisfy such economic substance test for a financial year, the Authority shall issue a notice to the relevant entity notifying the relevant entity of —
the Authority’s determination that the relevant entity has failed to satisfy the economic substance test in relation to the relevant activity for that financial year;
the reasons for the determination;
the amount of any penalty imposed under subsection (2);
the date on which the penalty under subsection (2) is due being not less than twenty-eight days after the date of issue of the notice;
the Authority’s direction as to the action to be taken by the relevant entity to satisfy the economic substance test in relation to the relevant activity and the date by which such action must be taken; and
the relevant entity’s right of appeal under section 9.
The Authority shall impose a penalty of ten thousand dollars on a relevant entity that is required to satisfy the economic substance test in relation to a relevant activity for failing to satisfy such economic substance test.
If, for the financial year following a financial year in which a notice was issued under subsection (1) (“subsequent financial year”), the Authority determines a relevant entity that is required to satisfy the economic substance test in relation to a relevant activity has failed to satisfy the economic substance test in relation to such relevant activity, the Authority shall issue a further notice to the relevant entity notifying the relevant entity of —
the Authority’s determination that the relevant entity has not satisfied the economic substance test in relation to the relevant activity for the subsequent financial year;
the reasons for the determination;
the amount of any penalty imposed on the relevant entity under subsection (4), in addition to the penalty previously imposed under subsection (1);
the date from which the penalty under subsection (4) is due, being not less than twenty-eight days after the issue of the notice;
the Authority shall make a report to the Registrar under paragraph (6);
the Authority’s direction as to the action to be taken by the relevant entity to satisfy the economic substance test in relation to the relevant activity and the date by which such action must be taken; and
the relevant entity’s right of appeal under section 9.
The Authority shall impose a penalty of one hundred thousand dollars on a relevant entity that is required to satisfy the economic substance test in relation to a relevant activity for failing to comply with the economic substance test in relation to that relevant activity for a subsequent financial year.
The Authority shall not impose a penalty under this section after the earlier of the following —
one year after becoming aware of the contravention; or
six years after the contravention occurred.
Following the issue of a notice under subsection (3), the Authority shall provide the Registrar with a report of the matters referred to in that notice together with any additional information (whether or not provided to the Authority under section 7).
A penalty under this section must be paid before the end of the period of twenty-eight days commencing with the date mentioned in subsection (8).
That date referred to in subsection (7) is the later of —
the date from which the penalty is due under subsection (1)(d) or (3)(d); or
if a notice of appeal is given pursuant to section 9, the date on which the appeal is finally determined or withdrawn.
A penalty under this section shall be paid into the general revenue of the Islands and may be recovered as a civil debt due to the general revenue of the Islands.
If the Registrar receives a report under subsection (6), the Registrar shall apply to the Grand Court for an order under subsection (11).
If, on receiving an application under subsection (10), the Grand Court is satisfied that the relevant entity was required to satisfy the economic substance test in relation to a relevant activity and failed to satisfy such economic substance test, the Grand Court may make such order as it sees fit including —
an order requiring the relevant entity to take such action as specified in the order, including for the purpose of satisfying such economic substance test; or
in the case of a relevant entity that is —
a company that is registered or incorporated under the Companies Act (2026 Revision), an order that it is a defunct company to which Part 6 of that Act applies;
a limited liability company that is registered under the Limited Liability Companies Act (2025 Revision), an order that it is a defunct company to which section 40 of that Act applies; or
a limited liability partnership that is registered under the Limited Liability Partnership Act (2025 Revision), an order that the limited liability partnership be struck off in accordance with section 31 of that Act as if it is a limited liability partnership that the Registrar has reasonable cause to believe is not carrying on business or is not in operation.

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