Guernsey is constantly innovating to compete on the world stage, writes Colin Le Bachelet of RBC Wealth Management.
Since the onset of the financial crisis, there has been plenty of debate and discussion about the role of offshore finance centres (OFCs). For some OFCs this has been uncomfortable, for others it has been grasped as an opportunity.
Guernsey, which finds itself in the latter camp, has used this period of heightened interest and awareness in OFCs to prove a point. That is, far from being a haven for tax evasion, secrecy and criminal financing, it is one of the most well-regulated, transparent and compliant jurisdictions in the world. Indeed Guernsey recently found itself an important new champion when Deputy Prime Minister Nick Clegg praised the Channel Islands, as "an important gateway for the wider financial sector and indeed the economy in the United Kingdom". Ranked number 2 in the Global Financial Index's list of offshore financial centres, Guernsey has always been among the first OFCs to embrace guidelines and directives, such as the recommendations of the Financial Action Task Force, the EU Savings Tax Directive, and Code of Conduct and, more topically, tax information exchange agreements (TIEAs) and double taxation agreements (DTAs). At the time of writing, the total number of TIEAs and DTAs in place was 37 and 14 respectively.
A history of innovation
Of course, there are far more strings to Guernsey's bow than stringent regulation and adherence to international guidelines and directives. Since the birth of its finance industry over 50 years ago, Guernsey has not only provided
high net worth individuals across the globe with access to an array of financial and wealth management services, including banking, fiduciary services, captive insurance and fund management, but has continually taken steps and measures to ensure those services are among the best in the world.
One way it has achieved this is through being at the forefront of innovation, particular in respect of its fiduciary sector. The introduction of its trust law in 1987 marked the beginning of its efforts to provide a robust yet flexible framework for its resident trust and fiduciary providers to operate within. Over time, we've seen that and other related laws modernised, with the most significant changes coming over the last five years. In 2007, the trust law was updated to introduce concepts such as perpetual and purpose trusts and statutory reserved powers, followed by a new companies law in 2008 which simplified and streamlined the previous legislation in areas such as formation, share capital and company objects. In terms of new products and solutions, Guernsey was, in 1997 (amended in 2008), the first jurisdiction to introduce protected and incorporated cell companies – a form of company that enables economies of scale to be achieved by forming a single company with independent subcells, and which grew out of demands from the captive insurance industry.
There are also two exciting new pieces of legislation. The first is a groundbreaking extension of Guernsey's intellectual property legislation to introduce the world's first registered image rights law. The law not only establishes image rights as a separate branch of intellectual property rights, but also provides clearly defined safeguards for many celebrities and sports people looking to protect and capitalise on their images. Once registered, the image right, as an identifiable asset, can be placed within a Guernsey structure which can then license, assign or even dispose of the asset. Not only will this be of benefit from an administrative perspective, but, depending on the location of the individual and the jurisdiction in which the image rights are being traded, as an offshore jurisdiction, there may also be tax advantages to holding the rights in Guernsey. The second is the forthcoming introduction of a Foundations Law in Guernsey.
Although the concept of the foundation is well known since its introduction by Liechtenstein in 1926, and has been adopted in various formats by some offshore jurisdictions in the last two decades, (most recently by Jersey in 2009) the Guernsey draftsman has attempted to produce an entity which is rather more flexible, while at the same time likely to be more familiar to those in Civil Law jurisdictions. The concept of franchised and disenfranchised beneficiaries, for example, should set Guernsey's foundations law apart from other jurisdictions. As far as the future of Guernsey's trust and fiduciary services industry is concerned, few would argue that it's going to be anything other than a bright one. Not only does it employ around 2,200 people and is the largest sector of an industry that contributes over 40 percent of the Island's GDP, but it is doing all of the right things to position itself for growth.
Many firms are looking to make inroads in new markets such as the Far East and Middle East, with the support of Guernsey Finance, which, among other things, has recently organised visits to India and China, established a representative office in China, and organised delegations to Guernsey, the most recent of which took place this year with the visit of the China Trust Association.
Originally published in Private Client Practitioner, January 2013
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
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