There is a developing trend in global regulation and policy
towards businesses needing to be able to demonstrate a real
presence in the jurisdictions in which they operate. In this
changing environment, fund and asset managers are reconsidering
where they and their funds base themselves.
Jersey has always been an attractive option. It is an innovative
jurisdiction with a highly skilled workforce, high quality
infrastructure, a commitment to excellence and a well-deserved
reputation as a centre of 'substance'. It is this focus on
substance in particular which has allowed Jersey to differentiate
itself from other fund centres. Now there have been two
developments which have highlighted the importance of considering
management substance and given Jersey the opportunity to strengthen
its appeal when structuring decisions are being made.
In July 2015, the European Securities and Markets Authority
(ESMA) gave its recommendation that Jersey have
access in due course to an EU-wide passport for the marketing of
alternative investment funds in the EU under the Alternative
Investment Fund Managers Directive (AIFMD). The
implementation of AIFMD created a legal framework across the EU to
monitor and supervise alternative investment fund managers and one
of the key criteria under AIFMD is the question of management
Jersey had introduced legislation and regulations to mirror the
EU requirements but built-in extra flexibility with an 'opt-in
regime'. Managers wishing to comply fully with AIFMD may elect
to do so (and benefit from an EU marketing passport when that is
made available) but those managers wishing to market their funds
outside of the EU may do so without needing to be subject to AIFMD
The early endorsement of Jersey by ESMA (one of the first given)
and the flexibility of Jersey's opt-in regime have given
managers the confidence to choose Jersey knowing that it will
retain long term suitability.
The other recent development is the introduction of the G20-OECD
Base Erosion and Profit Shifting (BEPS) action
plan. BEPS refers to tax planning strategies that exploit gaps and
mismatches in tax rules to artificially shift profits to locations
where there is little or no economic activity. The BEPS action plan
consists of 15 key actions or areas but a common theme is the
intention to realign taxation and relevant substance. One action
point in particular looks to impose a stricter interpretation of
'permanent establishment', which would encourage businesses
to have a real presence in the jurisdictions in which they are
Therefore, although BEPS is not targeted at fund and asset
managers, there is growing acceptance that its implementation will
affect both managers and their funds.
Jersey, with its emphasis on substance, is well placed to play a
significant role. There has already been a steady increase in
recent years in the number of managers establishing or increasing
their presence in Jersey including a growing number of senior
personnel choosing to reside in Jersey.
BEPS is but the latest tax initiative and reflects a continued
global push to enhance tax transparency. We have already seen the
introduction of other measures including the US Foreign Account Tax
Compliance Act (FATCA), UK FATCA and the
'global FATCA', the Common Reporting Standard
(CRS). CRS, which came into force in January 2016,
is becoming the global standard for the automatic exchange of
financial account information with over 40 countries signed up as
early adopters (including Jersey) and over 70 countries pledging to
introduce this by 2017.
Recent developments have shown a growing trend of increased
scrutiny of businesses. This has placed the question of substance
at the forefront and businesses will need to demonstrate that
genuine activity takes place in the jurisdictions in which they
operate. Jersey has the experience and expertise to fully support
that endeavour. Fund and asset managers reconsidering where they
and their funds base themselves must add Jersey to their shortlist
as a prime location.
Article first published in Business Brief, April
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