In June 2017 Guernsey announced plans to introduce a new regulatory framework for the provision of pensions and pension services. At the same time, Guernsey introduced legislative changes to enable non-domestic pension schemes to seek approval under the tax law, with a view to providing information reporting to the local tax authority as an approved scheme. One of the motivations behind these changes was to enable eligible pensions to meet the requirements of the OECD's Common Reporting Standard ("CRS") to enable such schemes to fall outside the scope of CRS reporting.

This briefing identifies some of the key changes introduced by Guernsey with effect from 30 June 2017 and will be of direct interest to financial institutions that provide pension related services which are established in, or operate from, Guernsey, as well as employers and members of such schemes.

Capitalised terms used in this client briefing derive their meaning from the CRS and supporting guidance.

Pension schemes - the issue

Prior to the changes it was understood that most Guernsey pensions would be within scope of reporting under the CRS. This was so unless they could meet the specific criteria of a Broad Participation Retirement Fund or Narrow Participation Retirement Fund, which are regarded as Non-Reporting Financial Institutions. Alternatively, if a member's interest in a pension meets the criteria to be an Excluded Account, this would also be out of scope for CRS reporting.

The criteria to be met to qualify as a Broad or Narrow Participation Retirement Fund or an Excluded Account are set out in the boxes below.

Prior to the changes, most Guernsey pensions would not have met the criteria to be regarded as a Non-Reporting Financial Institution or an Excluded Account. This is due to the requirement of the CRS, which is common to each of these categories, that the pension fund must be both regulated and provide information reporting to the local tax authority, in addition to meeting certain other criteria.

However, Guernsey is now introducing regulatory oversight for eligible pension schemes, which may enable such schemes to meet the requirement to be regulated and provide information reporting to the Income Tax Office ("ITO"). If they are also able to meet the rest of the applicable criteria, they would qualify as Broad Participation Retirement Funds or Narrow Participation Retirement Funds and therefore be Non- Reporting Financial Institutions. Alternatively, member's interests in such schemes could be classified as Excluded Accounts if they also meet the applicable conditions for that classification. If successful in meeting all the relevant criteria, pension providers may prefer to comply with local regulatory and tax reporting obligations rather than comply with CRS reporting obligations. Either way, reporting of information will be required for such schemes.

The approach under CRS differs from that under the US IGA, where certain pension funds, such as section 150 approved occupational schemes, are expressly referred to as exempt from reporting for the purposes of the US IGA. This is not the case under CRS.

Regulatory oversight

As a first preliminary step towards implementing these proposals, the Fiduciaries Law, under which trust service providers are currently regulated, has been amended with effect from 30 June 20171 so that the formation, management or administration of pension schemes or gratuity schemes (as defined) is now expressly regulated. Those who provide these services by way of business will need to be licensed to do so by, or obtain an exemption from, the Guernsey Financial Services Commission ("GFSC"). The GFSC will have supervisory oversight of these regulated service providers. As a second preliminary step, the GFSC issued scheme rules2 effective from 30 June 2017 which were amended with effect from 29 August 2017 (the "Rules") as part of a more comprehensive framework for providers of pension schemes and related services. These steps pave the way for all eligible pension schemes provided from Guernsey to comply with new government regulation, in order to meet one of the criteria required to be regarded as either a Broad or Narrow Participation Retirement Fund. It also means that the scope of the Guernsey Financial Services Ombudsman, which handles complaints in respect of services provided by regulated entities, will be extended to providers of formation, management and administration services for pension schemes and gratuity schemes.

The States of Deliberation (Guernsey's parliament) also directed that further legislation should be considered over the next year to create the necessary legal foundation for the development of the new regulatory framework for pension schemes and their providers.

Gratuity schemes

The changes to the Fiduciaries Law apply not only to pension schemes but also to, what are termed gratuity schemes. These are defined as schemes established in connection with the carrying on of business or the exercise of functions which have as their sole or main purpose the provision of a lump sum or other payments for employees (or their spouses, children, dependants or other persons) on the occurrence of an event or circumstance, including the expiration of their term of service.

The GFSC has clarified that for purposes of the Rules schemes shall only be regarded as gratuity schemes if the lump sums or other benefits are provided as retirement benefits or end of service benefits3.

Gratuity schemes therefore include so-called "end-of-service" schemes which are not necessarily established to provide retirement, disability or death benefits but can include these events as triggering a pay-out. Depending upon the terms of the gratuity scheme and the circumstances in which payments are made to members, it is unlikely that such schemes on their own without further benefit restrictions would be outside the scope of CRS reporting, even though they and their providers may be subject to government regulation under the new framework. To be outside the scope of CRS reporting such schemes would have to fulfil the criteria in order to qualify either as Narrow or Broad Participation Retirement Fund.

Information reporting

In addition to introducing regulatory supervision of pension providers, Guernsey's Income Tax Law was also amended with effect from 30 June 20174 to provide the option for all pension schemes to seek approval under the Income Tax (Guernsey) Law, 1975 (as amended) (the "ITL"). As a condition of being granted and maintaining approval, the Director of Income Tax (the "Director") will require the reporting of information in respect of the pension scheme concerned both at the time of the application and then at intervals thereafter.

Specifically, this will enable schemes that currently do not file information with the ITO (for example section 40(o) and 40(ee) exempt schemes) because they do not require income tax relief for their members who are not resident in Guernsey for tax purposes, to submit reports that are consistent with fulfilling the conditions to continue to be exempt from Guernsey income tax on income from such schemes.

As a result of these changes, pension schemes that seek approval will be required to provide annual reporting to the ITL. If they also fulfil the other criteria required in order to be regarded as a Broad or Narrow Participation Retirement Fund, they would be outside the scope of CRS reporting. Thus, section 150 and 157A approved schemes for resident members and section 40(o) and 40(ee) exempt schemes for nonresident members will all be in a position (should they so wish) to meet both the regulatory and the reporting criteria as part of the conditions for being regarded as Non-Reporting Financial Institutions. These two criteria are elements that require structural changes to Guernsey's supervisory and income tax regime and those changes are now being implemented.

CRS reports due 2017

The deadline for submitting CRS reports, which cover the first reporting period of 2016, has now expired. Reports in respect of 2016 Reportable Accounts should have been filed by the deadline of 30 June 2017, although the ITO announced that penalties and compliance actions will not be applied until after 31 July 2017.

Following the publication of Bulletin 2017/5 by the ITO on 16 June 2017, the ITO have confirmed that schemes approved under section 150, section 157A and new section 154(A) ITL (which permits section 40(o) and 40(ee) pensions to apply for approval) that also meet the rest of the conditions to be regarded as a Broad Participation Retirement Fund or a Narrow Participation Retirement Fund, would not be considered as Reporting Guernsey Financial Institutions for the purposes of CRS for the reporting period 2016. Such approved schemes would therefore be out of scope for CRS reporting even before the GFSC's new regulatory framework for pension schemes and their providers is fully in place and before details of what information is to be provided and how often, are published by the ITO.

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1 The Regulation of Fiduciaries, Administrators, Businesses and Company Directors, etc (Bailiwick of Guernsey) (Pensions Amendment) Regulations 2017

2 The Pension Licensees (Conduct Of Business) & Domestic And International Pension Scheme And Gratuity Scheme Rules (No. 2) 2017


4 Income Tax (Pension Amendments) (Guernsey) Ordinance, 2017

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.