In recent years economic substance has become a fundamental factor driving developments in global finance centres. The global base erosion and profit shifting (BEPS) movement driven by the OECD was motivated by a desire to stop multinational corporations, particularly global technology firms, from artificially structuring their affairs to avoid corporate tax.
A spillover of all of this, as we are very well aware of now, was the transportation of the issue across to financial centres, where frankly it was redundant. However, we did see financial centres worldwide scrambling to introduce economic substance legislation – requiring relevant economic activities to be conducted within the jurisdiction of registration – leading to some getting caught in the firing line.
The Bailiwick of Guernsey's movement was possibly easier than some, given that the move was not much more than a shift from de facto to de jure requirements on substance. Following the introduction of substance legislation in 2019, the island was immediately whitelisted by the OECD and EU Review Processes.
This wasn't a surprise. Guernsey has a history of commitment to international standards in regulation and tax neutrality; the island was an early adopter of the OECD Common Reporting Standard (CRS) for the automatic exchange of information in 2014, later being branded as a co-operative jurisdiction by the OECD in 2015.
Earlier still, in 2013 Guernsey's government – the States of Guernsey – signed a Model I agreement with the United States to implement Foreign Account Tax Compliance Act (FATCA) based reporting. The Bailiwick was also an early signatory of the OECD's Multilateral Instrument (MLI) to implement tax treaty related measures and is a signatory of the Multilateral Competent Authority Agreement (MCAA) to share relevant information in relation to Country-by-Country Reporting. And as most professionals on the island can tell you, our assessment of compliance with the AML requirements of the Financial Action Task Force (FATF) Recommendations remains to this day the highest of any jurisdiction.
In my view, a jurisdiction's degree of commitment to the recognised and respected international standards reflects upon the type of financial centre that it is. Such a commitment and pedigree is a harbinger of a positive reputation.
If a centre is fully committed to substance, tax transparency and the global BEPS and AML agendas, it is also likely that the jurisdiction is of a high quality in other aspects, too; its regulator is responsive, flexible, and fair, and the service providers are equally talented and diligent.
That point of view is increasingly shared – surveys we completed in both 2019 and 2020 reported that LPs and others are increasingly seeing substance as a key determinant of locational choice. And reflecting this, in 2020 Guernsey introduced two new fast track regimes to help people migrate their affairs to the jurisdiction.
Applying to fast-track migrate a fund – and its manager – to Guernsey
In mid-2020 the GFSC introduced a fast-track migratory regime to enable the migration of overseas (non-Guernsey) fund management companies (mancos), and their investment funds, to the Bailiwick within a 10 business day turnaround time. The only caveat is that ahead of moving to, and conducting business on the island, the incoming manco must ensure it has received consent to migrate, along with an official licence to conduct fund management in Guernsey – as per the Protection of Investors (Bailiwick of Guernsey) Law, 1987. To simplify this process, the fast-track application regime includes both processes – providing consent to migrate on completion of the licensing process.
There are just four steps to fast-track migrating a fund and manager to Guernsey, they are as follows:
- Appoint a Guernsey-licensed administrator – a list can be found in the business directory on our website
- Submit application to the GFSC
- 10-day review period
- Pay the competitive migration fee – this is reduced pro rata in the first year
Migration of LPs to Guernsey
In mid-2020 the island also introduced The Limited Partnerships (Guernsey) (Migration) Regulations 2020 to further assist LPs that were originally established overseas to move to the Bailiwick quickly and easily. Before the 2020 Regulations, the Limited Partnerships (Guernsey) Law, 1995 enabled LPs to migrate into and out of the island on the condition that the LP became a new legal entity. If an LP moved to the island it would no longer be the same 'entity' as it was in its jurisdiction of establishment. The 2020 Regulations make it clear that the migration does not result in the creation of a new legal structure, and that the foreign law limited partnership is 'continuing', just in Guernsey and as a Guernsey law limited partnership.
The five steps to migrating a LP to Guernsey:
- Appoint a Corporate Service Provider (CSP)
- Due diligence completed – assessing whether the LP meets the criteria under the Regulation
- If the LP intends to be a supervised entity – obtain consent from the GFSC. However, if the LP does not undertake supervised activities, move straight to step four
- Apply for registration to the Guernsey registry and pay a fee
- Migrate the LP to Guernsey on an agreed date
It would appear that out of the global push for financial jurisdictions to meet international standards on economic substance, an opportunity has arrived for Guernsey. And to this point Guernsey Finance has now published a revised migrations brochure to explain these new regimes. We hope it proves useful.
2020 will be remembered sadly for many things. But one of the positives has been the flight to quality that the substance agenda has catalysed.
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.