ABOUT THE AUTHOR: Peter Niven is the Chief
Executive of Guernsey Finance
When I wrote in the STEP Journal just shy of a year ago
the world was only just beginning to pick itself up off the floor
of the global financial downturn. Since then, we have seen renewed
confidence in the markets, but this is just the start of a trip
down what will be a very long road to recovery and at the moment
general economic conditions remain fragile.
Guernsey cannot be completely immune, although the Island has to
a large extent remained resilient in the face of these pressures.
Perhaps the most significant fallout though has been the increased
focus on so-called ‘tax havens’ or ‘offshore’ centres.
Remaining resilient
Recent economic conditions have demonstrated the way in which
today, more than ever before, we are part of a global financial
community. Guernsey has been adamant throughout that it has not
exported instability, but has been subjected to it, and we have not
been able to completely shelter ourselves from the impact.
However, a breadth of finance business is carried out on the
Island. So, while the general downturn has adversely impacted
business flows within some sectors, such as banking and funds,
others like (captive) insurance and fiduciary services are seeing
an upswing or have identified new prospects.
Guernsey’s fiduciary sector has been a mainstay of the Island’s
finance sector over the last 50 years and this heritage has
developed significant expertise and infrastructure. Today, we play
host to more than 150 licensed fiduciary providers, ranging from
large multinational organisations to local, independent boutique
operations. Together they hold more than GBP300 billion worth of
assets in trust. In addition, there are some 60 licensed
individuals who can act within the sector as directors, co-trustees
or trust protectors. These fiduciary organisations and individuals
are supported by a comprehensive network of legal, accounting,
audit, tax and actuarial services. The Island also operates within
a strong regulatory environment, with an effective licensing and
supervision system.
More recently, a new Trust Law, Company Law and a
Company and Intellectual Property Registry have been introduced.
These have proven extremely popular developments in meeting
evolving client needs and were instrumental in the Island being
named International Finance Centre of the Year at the STEP Private
Client Awards 2008/9.
Today, more than ever before, we are part of a global
financial community
What we have seen during the past year is that globally there
has remained a significant amount of private wealth looking to take
advantage of appropriate structures for asset protection or estate
planning (and – albeit to a lesser extent – corporate monies
seeking sound investment opportunities). In addition, the financial
crisis triggered something of a ‘flight to quality’, with the
uncertainty and turmoil crystallising the benefits of using
familiar vehicles and jurisdictions to maintain and even enhance
wealth for future generations.
It is within this context that our fiduciary providers are
reporting real buoyancy in business flows. As part of this we have
seen a growing interest in Qualifying Recognised Overseas Pension
Schemes (QROPS) from Guernsey. During 2010 Guernsey Finance, in
conjunction with industry, is stepping up the promotion of QROPS,
as well as our wider fiduciary offering.
The Island’s practitioners are also increasingly attracting new
clients from India, the Middle East and the Far East. Some of our
independent fiduciaries already have offices in locations such as
Hong Kong, and are now looking to establish links into Shanghai –
where Guernsey has had a representative office for two years – as a
way to directly access the Chinese market. We are therefore also
working to increase awareness of the Guernsey brand across these
markets and regions.
Top tier
One of the key developments resulting from the financial crisis
has been the increased focus on so-called ‘tax havens’ or
‘offshore’ centres. During its 50 years as a finance centre, and
particularly during the last decade or so, Guernsey has faced
scrutiny from the likes of the UK Government (the 1997 Edwards
Report), the EU, the International Monetary Fund (IMF), the
Financial Action Task Force (FATF) and the Organisation for
Economic Co-operation and Development (OECD)/G20. The Island has
always cooperated in these processes and on each occasion been
placed highly amongst the international finance centres.
This has continued to be the case during the past year. Guernsey
features alongside the UK and US on the OECD ‘white list’, which
was published at the conclusion of the London G20 summit in April
2009. The review of British Crown Dependencies and Offshore
Territories by Michael Foot on behalf of HM Treasury placed
Guernsey highly amongst the international finance centres. Lord
Hunt’s review of the Guernsey banking sector has revealed that
there are opportunities for us to increase our provision of private
banking and wider fiduciary services to the wealthy across the
world, as well as attracting high-net-worth individuals to live and
do business in the Island.
In addition, there is every reason to believe that Guernsey will
perform well under assessment by the IMF during the first half of
this year. Guernsey, like the UK, does not have a banking secrecy
law and continues to show its commitment to meeting international
standards of tax transparency through the signing of further Tax
Information Exchange Agreements (TIEAs). Our very first was with
the US in 2006 and we have now signed a total of 15, with the
prospect of more in the coming months.
Guernsey continues to embrace transparency and eschew secrecy,
but not at the expense of confidentiality or privacy for clients.
There have been many scaremongering stories about ‘leaky buckets’,
but this could not be further from the truth. In particular, within
each TIEA there is a very specific procedure for accessing
information and this ensures that there is an underlying bona fide
reason for the information request and that fishing expeditions
will not be allowed. Fiduciary practitioners have in the past
viewed TIEAs as potentially jeopardising confidentiality and
therefore a threat to attracting new business. However, our
experience means that they are now embraced as providing confidence
to clients that Guernsey is working to the highest international
standards.
2010 and beyond
Guernsey was ranked 15th in the latest Global Financial Centres
Index (GFCI 6, September 2009). Despite this impressive ranking we
are currently facing challenges in a variety of guises: tax
transparency, corporate tax rates, a revised EU Savings Tax
Directive (EUSTD) and sector-specific EU initiatives, such as the
Alternative Investment Fund Managers (AIFM) Directive.
Having said that, we have also been challenged many times in the
past and the Island has always proved capable of adapting to
survive. For example, Guernsey worked very closely with Jersey and
the Isle of Man regarding the original EUSTD and we are intending a
similar level of cooperation again now, not least in the need to
review corporate tax rates.
We believe the Island can continue to offer exempt companies to
the fund management industry. We have also made it clear that the
taxation of trusts and partnerships will be outside the scope of
our review, which will focus on the taxation of Guernsey-resident
companies and companies carrying on business on the Island through
permanent establishments here. There are important issues of detail
which have yet to be resolved, in particular whether tax
liabilities for Guernsey-resident companies should be based on
worldwide income, or wholly or partially on income arising in
Guernsey. Importantly though we have no intention to introduce
taxes on capital or capital gains. The bottom line is that we are
working to adopt an internationally acceptable, competitive and
sustainable corporate tax regime for the future.
It is so that we can tackle such challenges most effectively
that the Island is also stepping up its representation within the
corridors of power in both the UK and the EU. Guernsey is
determined to do all it can to ensure that it remains attractive to
clients as a jurisdiction within the very top tier of international
finance centres.