Fiona Le Poidevin examines Guernsey’s continued evolution as an International Finance Centre, at the forefront of adopting new regulatory and tax standards, while at the same time expanding its range of services.
The global financial crisis brought to an end a period of unprecedented prosperity. Now we have the debt-laden developed economies experiencing depressed rates of growth and the emerging markets feeling the knock-on effects of reduced demand for their goods and services. While initially it might have seemed that this situation was just a temporary aberration now it is clear that this is the ‘new normal’.
The changed economic environment has also resulted in greater scrutiny of the role of international finance centres (IFCs), such as Guernsey, which has once again demonstrated its long held ability to adapt to changing circumstances.
The Island has been at the forefront of adopting new regulatory and tax standards, while at the same time expanding the range of services we can offer – such as our new foundations legislation and becoming the first jurisdiction globally to recognise image rights in law and provide them with a register.
The introduction of the Guernsey Foundation came in January this year. It provides local practitioners with another tool – in addition to the existing wide range of structures available, such as trusts, companies and the family office – for meeting client needs and in particular, asset protection, estate and succession management, philanthropy and wealth planning for globally mobile individuals and families.
Although the foundation has been available in other jurisdictions for some time, the Guernsey Foundation is quite different from other models. It was tailored to meet the wishes of international private client advisers, who wanted the opportunity to use a foundation solution from a well regulated and respected jurisdiction, such as Guernsey which, although renowned for administering trusts, has built up considerable infrastructure and expertise in managing the wealth of private clients. The Island also boasts a judicial system that is experienced in dealing with fiduciary matters, something else that puts advisers’ minds at ease.
The introduction of foundations locally provides clients with the ability to use the Island even if they were previously uncomfortable with the trust structure, which because of its common-law roots is familiar to those in the Anglo-Saxon world of the UK, US and Canada, for example, but less well understood in civil law jurisdictions such as continental Europe and some of the ‘emerging’ markets, which are the major sources of new and rapidly growing private and corporate wealth.
The Guernsey foundation is an incorporated entity with separate legal personality. As such, on face value, it looks more like a company than a trust. However, unlike a company, it does not have shareholders to whom the board are accountable. Instead, the foundation holds assets (in its own name) on behalf of beneficiaries, or for particular purposes, or both, in accordance with the foundation’s constitution. Therefore, although it looks similar to a company, its operation is more akin to that of a trust. However, a foundation is neither.
The foundation’s constitution comprises a charter setting out the foundation’s purpose, initial assets and duration (which may be unlimited) as well as rules prescribing, among other things, the functions of the council and procedures they must follow. There are no ‘trustees’ and instead, council members perform a similar role by having a duty to the foundation to act in good faith, and cannot, without express authorisation, profit directly or indirectly from their position.
Guernsey has taken note of the fact that some clients may worry about confidentiality because as foundations are registered entities, they are, unlike trusts, publicly visible. In Guernsey, only limited details are available to the public (although full disclosure must be made to the registrar), whereas in other jurisdictions such as Jersey and the Isle of Man, the whole charter is commonly visible. Yet, Guernsey’s approach also means that this limited visibility offers the benefit of being able to prove the foundation’s existence quickly when dealing with third parties.
The early foundation registrations in Guernsey have predominantly been for philanthropic purposes. We anticipate that this type of foundation will continue to prove popular going forward and that the Island will also see structures set up for more traditional private wealth management, estate planning purposes and other family arrangements. Additionally, we may also see Guernsey foundations used to hold ‘orphan’ structures where the assets of a particular entity can be held in a foundation, rather than having a parent company and being an asset on that company’s balance sheet. This means that the foundation may be used in fund structuring as well as other corporate purposes, including subordinated debt, private equity structuring and providing employee benefits.
The wealth management expertise Guernsey possesses means the Island is also very well placed to administer new business under what is world-first image rights legislation. At the end of last year, Guernsey became the first jurisdiction globally to recognise image rights in law and provide them with a register. The register went live on 3 December 2012 and later that day, the world’s first image right application was approved. This has since been supplemented by a series of other approvals from individuals seeking to have their personalities and associated image rights placed on a statutory footing. These registrations have included two international DJs as well as Guernsey’s very own tennis star, Heather Watson, who currently sits within the world’s top 50 ranked players.
The image rights offering can also be utilised by corporate entities but it is expected to be particularly attractive to high-profile individuals. Placing image rights on a statutory footing provides definition around the person as the individual and the brand and can assist with valuation. In doing so, this creates both certainty for tax matters and also a commodity which can be both protected and exploited.
Traditionally, the main way to protect the intellectual property (IP) in a personality has been through trade mark rights. While there are other related IP rights that come into play, such as copyright and design rights, trade marks are the most relevant. However, they only go so far in protecting the rights of the modern celebrity, whose interests are more wide ranging than have historically been the case.
Guernsey’s image rights legislation addresses the needs of the modern marketplace by allowing a personality to formally register not only images but also characteristics associated with that individual, such as aliases, signature, voice, mannerisms, gestures or other indicia. The main benefit of this is to create a formal registerable right that provides clarity and flexibility.
Personality and image rights effectively cover all manner of activity conducted in the personality's name, which means they offer a high degree of protection when considering the use of the celebrity's image by unauthorised third parties. In addition, the personality and image rights can be licensed, assigned and generally dealt with separately, allowing complete freedom in their use and operation by the personality or their licensees.
Innovations such as image rights and the undertaking of other new initiatives to attract business in niche sectors, such as cleantech, where we can provide financial services through the lifecycle of these environmentally friendly projects, have had to be done in recent years with an increased focus on IFCs.
The financial crisis exposed weak links within the global financial system and as a result, there has been a concerted effort to improve standards, especially within IFCs. Guernsey has always prided itself on being within the leading tier of IFCs and this status has been reaffirmed by scrutiny from external agencies.
In January 2011, the IMF published a series of evaluation reports which commended Guernsey’s high standards of financial regulation, supervision and stability along with our robust criminal justice framework. Indeed, Guernsey was judged to have the highest levels of compliance with Financial Action Task Force (FATF) standards of any of the jurisdictions assessed, including the world’s major economic powers.
Guernsey has also made significant progress in developing its framework in respect of tax transparency and exchange of information. Guernsey agreed to enact measures equivalent to the EU Savings Tax Directive from July 2005, and in 2011 we adopted automatic exchange of information. We have also made significant progress in signing tax information exchange agreements (TIEAs) and it was these steps which led to the Island being within the very first set of jurisdictions placed on the OECD ‘white list’ at the conclusion of the G20 summit in London, April 2009.
To date, the Island has signed 43 TIEAs as well as 19 Double Tax Arrangements (DTAs), comprising 11 ‘partial’ DTAs and eight ‘full’ DTAs, including the UK, Luxembourg, Malta, Qatar, Hong Kong and Singapore. Our proactive position in respect of tax transparency and exchange of information has been consistently commended by international agencies such as the OECD, its Global Forum on Transparency and Exchange of Information for Tax Purposes and the Financial Stability Board.
The Guernsey Government has also announced its intention to sign an Intergovernmental Agreement (IGA) with US authorities for the implementation of the Foreign Account Tax Compliance Act (FATCA). In addition, Guernsey agreed in principle to an IGA with the UK on a proposed tax package, including enhanced reporting of tax information along FATCA principles, but with alternative reporting arrangements for non-domiciled UK tax residents (non-doms).
Guernsey’s own Chief Minister, Deputy Peter Harwood, even wrote to Prime Minister David Cameron at the start of May welcoming the announcement by the UK, along with France, Germany, Italy and Spain, that they were to pilot multilateral automatic information exchange. In June, Deputy Harwood attended a pre-G8 'Open for Growth' meeting at Lancaster House, hosted by the Prime Minister where he set out Guernsey’s support for the Multilateral Convention on Mutual Assistance in Tax Matters. He also welcomed the developing commitment of G8 members to greater transparency on beneficial ownership following announcements made at the G8 summit, highlighting that Guernsey had been adhering to these standards since the year 2000.
These developments demonstrate how Guernsey is proactive in ensuring it is adopting the very latest global standards for tax transparency and exchange of information as well as the regulation of financial services activity. When taken in combination with the way Guernsey is expanding and evolving its service offering so it can best serve clients going forward, it illustrates how the Island is perfectly positioned to remain a top tier IFC both now and into the future.
Fiona Le Poidevin
Fiona Le Poidevin is the CEO of The International Stock Exchange Group. She is a Chartered Accountant and a Chartered Director. Her role includes strategy formulation and business development, exploring opportunities to grow the £300bn+ of securities already listed on the CISE through the introduction of new products and service offerings. Prior to her appointment in January 2015, Fiona was chief executive of Guernsey Finance, the promotional body for Guernsey’s finance industry. Previously a senior tax manager with a Big 4 accountancy firm, she has more than 18 years’ experience working in financial services in both London and the Channel Islands.