Guernsey: Unperturbed

Last Updated: 19 May 2015
Article by Dominic Wheatley

Most Read Contributor in Guernsey, September 2018

Guernsey says it is well positioned to deal with tax issues coming its way.

There are numerous issues related to tax that international fund jurisdictions are required to deal with at present, as ADI has documented. The beneficial ownership exchange and BEPS are two of the most prominent of them. On both these items Guernsey believes that it is well positioned, and probably better so than any of its rivals. ADI hosted a roundtable in Guernsey in March, where the tax challenge to all international fund jurisdictions was dealt with in some detail.

Unlike some other offshore domiciles Guernsey has been collecting beneficial ownership information on a corporate registry since 1999. If you want to have a company in Guernsey, you have to have a regulated financial services provider run that company for you. Trust companies and fund administrators, for example, are required to find out who owns the company - and not just the legal owner of the shares in that company, but also the ultimate beneficial owner.

So, at least for Guernsey, the issue is not so much whether there should be a registry but whether the information should be made available to the public. There are many good reasons why this information should remain outside the public domain, it was argued at the roundtable. But the point is that it is available to tax authorities and others if required. The Financial Action Task Force approach, followed by Guernsey, is to ensure that the true owners are known, that this information is readily available and that it can be exchanged when necessary.

But what happens if Miliband gets into Downing Street in May and carries out his threat to blacklist jurisdictions that do not make the information public? JTC's Steve Desmond said that if Miliband comes to power and carries out his blacklist threat he will have to do that to many OECD countries, in addition to Guernsey and the other offshore centres.

BEPS is another challenge for the offshore centres. Much of the roundtable discussion focused on this particular topic, and what it means for Guernsey and other similar domiciles. Whilst many details surrounding BEPS have to be finalised one thing is sure: having substance in a jurisdiction is going to be critically important.

Gavin Farrell of Mourant Ozannes made the point that BEPS is an extension of central management and control; it focuses on where that is. BEPS will make it more difficult for us to prove that a presence in Guernsey is justified. But it will be easier for Guernsey to demonstrate that there is real substance than it will be for the Caribbean domiciles to do this.

Guernsey Finance's Dominic Wheatley said that substance means different things to different people but Guernsey has a long history of meeting challenges such as BEPS and having survived them. If the OECD produces a set of rules that everyone has to adhere to that willn be helpful to Guernsey as it will create a level playing field.

Fiona Le Poidevin, who is the new CEO of the Channel Islands Securities Exchange, made the point that BEPS was set up with the Googles and Starbucks in mind; there is a danger about how rules designed for companies like these will affect the fund industry. But when it comes to transparency Guernsey leads over its competitors so shouldn't be any concern on this score. And Carey's Joe Truelove said that with respect to investment funds and BEPS Guernsey offers a tax neutral product similar to those that onshore jurisdictions offer. This shouldn't be affected by BEPS.

People use Guernsey as a fund domicile because it has flexible regulation and good company law, not because of tax.

Investment funds domiciled in Guernsey are big investors in the UK. KPMG has done research on this topic which suggests that there is £25 billion of net investment (investment coming from outside the UK into the UK) from Guernsey based funds. The universal view at the roundtable was that no government in London, Labour or Conservative led, would want to jeopardise that. A point made by many contributors is that politicians often say silly things in the heat of an election campaign. Once the campaign is over much of this is then quietly dropped.

An original version of this article was published in Alternative Domicile Intelligence, April 2015.

For more information about Guernsey's finance industry please visit www.guernseyfinance.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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