JERSEY TAX HAVEN

Stability and security will be the watchwords in offshore financial centres in the months ahead. Offshore banking has been and will remain at the cornerstone of the offshore finance industry. In the months ahead, the stability provided by the leading jurisdictions in the offshore environment will be the most important feature.

International investors share the same concerns as resident savers who have watched the dramatic events that have hit the global banking community unfold across the world. Investors generally have had their confidence deeply shaken by events in New York, London and other leading markets and going forward there will no doubt be a demand from investors for greater economic stability and security.

An international financial centre such as Jersey provides a relative oasis of calm in these turbulent times. The Island has a huge pool of liquidity available from deposits placed locally. More than £200bn has been attracted to Jersey over the years. These funds do not lie idle in the bank vaults of Island offices, but are circulating amongst the onshore financial centres, particularly London.

As stability becomes an essential commodity for international investors the Island’s long- held reputation as a safe, secure location in which to shelter assets from global turmoil is gaining special significance.

Banks in Jersey are subsidiaries or branches of world-wide financial institutions, but tend to be far more capitalised in Jersey than is the industry norm. This is because the Island is a centre for deposits, giving further comfort to investors.

Alongside the need to demonstrate stability, offshore jurisdictions are also competing more aggressively than ever for international investment business. Many new opportunities are arising from the emerging markets in the Far East, particularly in China and India.

Jersey Tax Haven - Financial future

Jersey recently commissioned a long-term study into the future of financial services, undertaken for the Island by the London Business School. One of its main conclusions was that greater resources would need to be devoted to the markets in China, India and Eastern Europe. These areas were identified as markets where, alongside London, most new business would be acquired in the future. The events of the last few months have not affected those trends.

Jersey professionals have been encouraged by the increasing numbers of legal and finance professionals based in the emerging markets turning to Jersey in support of their investment planning and asset structuring. In China, for example, there are many instances where institutional investors have been able to tap into the investment opportunities available in the European markets through the formation of Jersey companies which are then listed on European exchanges. A delegation from Jersey Finance has already made two successful visits to China this year and further visits are planned.

Also it is clear from a recent visit to India by a delegation from Jersey that the Island is an attractive location for Indian holding companies looking to diversify business interests into the UK and Europe. Indian nationals are now able to invest up to $200k per annum outside of India. This has opened up the opportunity for a range of private wealth management work.

Finance centres have also needed to embrace the requirements of international bodies such as the OECD which has been engaged in its ‘harmful tax competition’ initiative, the objective of which is to achieve a global level playing field based on high standards of transparency and effective exchange of information in tax matters. In response to these international moves, Jersey has, for example, been committed to the principles of exchange of information on request and transparency since as far back as 2002.

However, this international pressure on jurisdictions to provide greater information on their client’s financial affairs has led to widening concern amongst high net worth clients that the privacy of their affairs may no longer be guaranteed. This has, in turn, led to considerable debate amongst those who advise wealthy clients about the threats to confidentiality posed by the demands for greater transparency from tax authorities.

But it is possible for jurisdictions to adhere to international standards and to co-operate with international moves to combat fiscal crime, whilst maintaining a client’s right to privacy and confidentiality.

It is worth considering the differences in the rules that exist between jurisdictions. There are some financial centres that rely on banking secrecy laws to uphold the privacy of financial affairs.

However, such centres are attracting an increasing level of negative publicity regarding assets linked to illegal activity which hide behind a cloak of secrecy. As a result, there is mounting pressure for them to abandon the secrecy barrier.

There are other centres which do not rely on secrecy laws, including many jurisdictions which are familiar to British expatriates. In this respect, Jersey is not a secretive jurisdiction, as it protects the rights to privacy and confidentiality of financial information relating to law-abiding citizens without the need for banking secrecy laws.

Jersey Tax Haven - Client confidentiality

Jersey embraces the concept of transparency in its regulatory practices and it is acknowledged for doing so by international bodies and law makers. This does not mean, however, that private and confidential data about clients held solely by institutions in Jersey is accessible and will be disclosed. On the contrary, Jersey has always upheld the principle of confidentiality of client affairs.

Some may question whether the Island can continue to do this when the HMRC has been seen to increase its powers to obtain information about offshore bank accounts, most notably following the Court ruling won by HMRC in 2007. This case related to information held about clients in the UK with offshore bank accounts.

The industry believes that HMRC would not generally be able to compel information to be disclosed by Jersey subsidiaries and/or branches of UK institutions, providing always that the relevant information was not held in the UK. Although the position has not been tested in the Island, this is the view of Jersey legal experts familiar with an understanding of Irish and English civil case law.

Jersey Tax Haven - Tax transparency

In the fight against money laundering and fiscal crime and to meet OECD principles of transparency a new model agreement has been created, known as the Tax Information Exchange Agreement (TIEA).

Many financial jurisdictions are signing agreements with individual countries and Jersey is amongst them. To date, the Island authorities have negotiated agreements with the USA, Netherlands and Germany. It is important to recognise that tax authorities can only use TIEAs in specific cases where the requesting authority is able to demonstrate that there is a need to obtain information, and that all other means to discover the information they require has been exhausted in their own territory.

It is possible in Jersey’s view to support the concept of greater transparency in financial affairs, whilst at the same time adhering to original and long held principles that the financial affairs of legitimate, law-abiding clients are sacrosanct.

Alongside the need to demonstrate stability and the challenging issues of transparency and information exchange, financial centres will continue to compete on their ability to innovate and enhance their commercial environment so that they are more attractive for international investors.

Jersey Tax Haven - Foundation formulation

Already this year in Jersey the Island has introduced enhancements to its company laws, launched rules that enable promoters to set up unregulated funds which complement the hugely successful regulated funds regime, and finalised new legislation which will enable foundations to be formed in the Island for the first time.

Foundations, which will be available in Jersey alongside existing vehicles such as companies, trusts and limited partnerships, may be of particular interest to international investors and their advisers in respect of long-term financial planning.

Unlike a trust a foundation is a distinct legal entity similar to a company, although it has no shareholders. The powers of the foundation will be exercised by a council, one of whose members must be registered under the Financial Services (Jersey) Law 1998 to conduct financial services business of this type. The foundation’s charter will need to be lodged with the Registrar’s department of the Jersey Financial Services Commission, setting out the name and broad objectives of the foundation.

We anticipate that the foundation vehicle will appeal to clients based in civil law territories where they are less familiar with the trust concept. It will also be an effective financial planning vehicle for those clients who want to maintain more personal control of the assets. It has some of the attractions of a trust vehicle and some of the benefits of a company structure, including separate legal status. This should enhance its appeal to private clients and their advisers who may not previously have considered Jersey as a location to shelter assets.

Whilst the need for a stable and secure environment will be paramount, investors also need choice. The flexibility of regulation, the widening scope of legislation and the growing specialist skills prevalent in jurisdictions such as Jersey help to provide the choice that investors seek. Diversity and specialization are also essential ingredients in successful international finance centres.
Offshore Pro Group