Different countries have different interpretationof what is considered as "Distribution Business" to be classified as relevant activity for Economic Substance Regulations.
For an activity to be classified as "Relevant Activity" under Distribution business, below (all) conditions should be fulfilled :
Above reference point (3) i.e. reselling outside the country is mandated to be classified as Relevant Activity or not, is getting different interpretation from country to country.
Guernsey, Isle of Man and Jersey
Document reference - Guidance on aspects in relation to the economic substance requirements as issued by Guernsey, Isle of Man and Jersey (https://www.gov.gg/CHttpHandler.ashx?id=118851&p=0)
The definition encompasses companies which purchase raw materials and finished products from other non-resident members of the same group/connected persons and re-sell them for a profit.
ABC Ltd buys CDs from other group companies based in Asia and re-sells them to other group companies and customers in Europe. These activities are within the scope of the definition, therefore ABC Ltd is subject to the substance requirements.
No mention of re-sell outside the country, which is substantiated form the example also i.e. re-sells in Europe (mentioned countries are part of Europe) is criteria to be consider relevant activity, i.e. if goods are sold within country also will be considered as relevant activity (distribution business).
Document reference - THE INTERNATIONAL TAX CO-OPERATION (ECONOMIC SUBSTANCE) LAW, 2018 - (http://www.gov.ky/portal/pls/portal/docs/1/12738510.PDF)
“distribution and service center business” means the business of either or both of the following -
(a) purchasing from an entity in the same Group -
(i) component parts or materials for goods; or
(ii) goods ready for sale, and
reselling such component parts, materials or goods outside the Islands;
Clearly stated, that re-selling should be outside the country, to be classified as relevant activity
United Arab Emirates
Document reference -CABINET OF MINISTERS RESOLUTION No. 31 of 2019 CONCERNING ECONOMIC SUBSTANCE REGULATIONS (https://www.mof.gov.ae/en/lawsAndPolitics/CabinetResolutions/Documents/Cabinet%20of%20Ministers%20Resolution%20No%20%2031%20of%202019%20Concerning%20Economic%20Substance_English.pdf)
Distribution and Service Centre Business: any of the following businesses:
purchasing from a Foreign Connected Person and importing and storing in the State: component parts or materials for goods; or goods ready for sale, and reselling such component parts, materials or goods outside the State.
Example (from The UAE Economic Substance Regulations Relevant Activities Guide) :XYZ LLC (UAE) buys furniture from a group company based in Lebanon and then re-sells the furniture throughout the Middle East. XYZ LLC is considered as carrying on a Distribution and Service Centre Business.
Clearly stated, that re-selling should be outside the country, to be classified as relevant activity, however as per example, re-sells in Middle East (UAE is part of Middle East) is a criteria to Consider Relevant activity.
What is your interpretation?
Generally, when we need an interpretation of a legal framework, we refer to the existing implemented jurisdiction. For "Economic Substance Regulation", everyone is in the implementation stage and hence, it's important to be aligned, on the intent.
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