Jersey Cell Companies by David Singleton
The Companies (Jersey) Law (Amendment No.8) 2005 came into effect on 1February 2006 subject to certain exceptions as detailed in the Companies (Amendment No. 8) (Jersey) Law 2005 (Appointed Day) Act 2006. This amendment introduces cell companies into Jersey Company law and follows the models of other jurisdiction such as Guernsey, Isle of Man and the Cayman Islands where the concept of protected cell companies (PCC) is well established.The Amendment provides for two new vehicles: the Jersey Protected Cell Company (PCC) and the Incorporated Cell Company (ICC). A Cell company ? whether an ICC or a PCC – is to provide a vehicle which can create cells, within which assets and liabilities can be segregated. The assets of a cell should only be available to the creditors and shareholders of that cell.Jersey unlike some other jurisdictions does not intend to limit the uses of cell companies through legislation. The States of Jersey will strictly monitor the use of Cell Companies and have issued specific documentation on the subject. A policy note is in the course of being drawn up to provide guidance in relation to the use of cell companies. Flexibility will be maintained, cell companies should not be used for ordinary trading activities (where a group structure remains the most appropriate approach) it is anticipated that new and innovative uses will be found for cell companies. The Amendment permits the creation of two types of cell company: the Incorporated Cell Company (ICC) and the Protected Cell Company (PCC). An ICC creates incorporated cells: these cells are separate companies with there own legal identity. They may hold assets, sue and be sued in their own name, and can operate like any other Jersey company. As a result, ?ring fencing? is effective within an ICC structure: assets and liabilities are apportioned as effectively as they would be among subsidiaries in a group structure. This resembles a group structure with the ICC being the Parent and the cells the subsidiaries.There is a major difference, while the ICC has significant control over the cells it creates; it is unlikely to own the cells. The cells may be owned by investors, whereas the ICC might be owned by the financial institution, as for example, in the case of Hedge Funds. A PCC creates protected cells that do not have their own legal personality, though they are treated for the purposes of the Companies (Jersey) Law 1991, as amended as if they were Jersey Companies. The PCC and the cells it creates together form a single legal entity, in contrast to ICCs. Even though a PCC and its cells constitute a single legal entity, a member will only be entitled to vote on resolutions of the company or cell of which they are a member.As PCCs and ICCs are clearly different it is neither desirable nor appropriate to apply the same tax treatment to both classes. The Comptroller of Income Tax has issued the following statement in relation to the taxation of cell companies.
Article 123A of the Income Tax (Jersey) Law which is the legislation applicable to exempt companies refers to ? ? a company ? ? making an application for exempt status, not parts of a company, so I am of the opinion that it is the company itself as a whole which makes the application and pays the exempt company fee, not particular cells of the company. So the exempt company fee payable, will not be dependent on the number of cells within, or which comprises, the company, and a single exempt company fee will be payable by a Protected Cell Company in respect of itself and all of the cells it creates.Article 123B, which is the legislation for international business companies (IBC) also refers to ? ?a company?? rather than parts of a company so IBC status will also be given for the company as a whole and the appropriate rate of tax applicable to the IBC will apply to the IBC?s taxable profits as a whole.
In the case of incorporated cell companies given that each cell is, as a matter of law, a separate company, each incorporated cell will be treated for the purposes of the Income Tax (Jersey) Law as a separate entity with its own tax treatment.