The funds industry must ensure it is not subsumed by the evolution of the base erosion and profit shifting (BEPS) initiative.

Tax experts Tony Mancini of KPMG Channel Islands and Abhijay Jain of PwC's Deals Tax Team in London, both stressed the importance of the sector being vigilant as to how the BEPS negotiations unfolded. Both were sitting as panellists at the recent Guernsey Funds Forum in London.

"I agree absolutely that BEPS is not intended for the investment management sector, but the problem we have is that we could be collateral damage. There's a steamroller that if it carries on we could just get squashed," said Mr Mancini.

Mr Mancini said industry bodies such as the BVCA and AIMA were providing a degree of pushback to ensure that exemptions for the funds industry were guaranteed, but BEPS still had a long way to evolve. He said a danger was that most of the people involved in formulating the BEPS principles did not necessarily appreciate the importance of the investment fund sector nor how it operated.

Mr Mancini added that a continuing focus on the term 'substance' and what constituted 'substance' from both funds and commercial business perspectives had created a lot of noise – much of it misdirected – which could lead to BEPS and related EU initiatives being misapplied to the funds sector.

Mr Jain supported Mr Mancini's view. "If the fund management industry is not careful, it will get subsumed by the much bigger and giant beast that is BEPS. You fall within the big machinery and you get ground down," said Mr Jain.

"What this substance argument is doing is providing ammunition to local countries and local governments and local tax authorities to say, 'you know what, I'm going to ignore all of that and I'm going to penalise you'. So, if you are doing investment into an Italian business, Italy will argue that you have a business of fund management in Italy itself and they will tax you for every dime you make in Italy."

He said governments could push hard for some return by using the BEPS and substance argument.

"That's where I think it becomes something the fund management industry does need to watch out for, because the application is not uniform. Every country has its own version of what BEPS really means."

The eighth annual Guernsey Funds Forum took place in London on 11 May. Hosted by Guernsey Finance, in conjunction with the Guernsey Investment Fund Association, it was moderated by ITV News anchor Alastair Stewart and featured renowned hedge fund manager Crispin Odey as keynote speaker.

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