Is it all over for the tax havens of Britain?
29 March 1999
27 November 2013
1 November 2013
24 February 2014
1 April 2014
5 November 2013
Gareth Fatchett believes that Britain's offshore islands have had their day...Gareth Fatchett is head of financial services at Morton Fisher and will become a partner of offshore specialists Armstrong Neal in May.
The word "offshore" in legal circles usually sends most lawyers running. The small number of advisers who involve themselves in this area of law soon realise that, quite literally, there is a whole world out there.
The globalisation of business means that it is quite possible to talk to anyone in the world at any time of the day. It is no longer sustainable to argue that, due to geography, any one jurisdiction is more convenient than any other.
Most people do not want convenience - they want confidentiality and fiscal efficiency. The EU "fiscal representative" requirement means that no one within the EU can guarantee their affairs will remain theirs alone and so the EU starts to look very unattractive.
However, this does not mean that the non-EC jurisdictions stomach money laundering or crime. The market further afield is tough where regulation is concerned. To say otherwise would be to peddle a myth created by such works of legal fiction as The Firm.
The Edwards review into the Channel Islands severely criticised the way business was being conducted, with the now infamous "Sark lark" being high on its list. The report slammed the lack of efficiency shown in the way that the Channel Islands conduct their business. No matter what defence practitioners put up, this was a damning indictment on the Channel Islands.
The final nail in the coffin for the Channel Islands has to be the fact that the EU, which provides funding for many things on the islands, must look at the jurisdiction as one of its fiscal "black sheep".
The Channel Islands cannot dodge the "European Big Brother Syndrome". Its ability to protect itself from EU intervention is low. Most offshore planning is based around the medium to long term. Can anyone say for definite that the Channel Islands will not come under harmonised EU anti-avoidance rules in that same time span?
For the UK investor, the "Robinson" legislation, introduced in the Finance Act 1998, quietly put paid to a vast number of arrangements with one fell swoop. The scope for the truly international business person to get involved in EU planning has been hit very hard.
With Schroder as Chancellor in Germany and Blair as Prime Minister in the UK, the two major financial powers in Europe are against the type of arrangements which the Channel Islands tries to promote.
The only alternative is to go further afield. You need to be able to assure yourself that the legal system is mature and stable. Relative to the Channel Islands, the cost of such advice is not prohibitive or exorbitant.
The majority of these jurisdictions have strong legal systems with equivalent investor protection to our own. And they have no concept of taxation for non-residents. You cannot get much more fiscally efficient than that.
The scary thought for practitioners in the Channel Islands is that the EU will make the Channel Islands a nice place to visit, but an unattractive place to do business.
...while Paul Dougherty claims that they still have a lot to offer. Paul Dougherty is head of corporate, commercial and trust at Simcocks, the Isle of Man.
In my 25 years offshore, I have heard the death knell being tolled regularly by mainland pundits - too many to count and with vested interests, trying, presumably, to speed up our demise. However, here we are, still going strong and, if anything, going from strength to strength.
Recently, a knee-jerk reaction by a new British government - with the intention of diverting criticism away from one of its ministers - jackbooted into place the Edwards review.
Ironically, the result was an almost complete dispelling of the many myths that have arisen, notably in the UK press, of the strength and regulatory control of the offshore environment and, more particularly, in the British islands, namely Jersey, Guernsey and the Isle of Man.
One of Edwards' conclusions was that, in some aspects, the offshore islands are better regulated than the UK, but like all sophisticated financial environments, they require improvement in selected areas.
Jersey, Guernsey and the Isle of Man provide a stable environment for the operation of financial centres throughout the world. There will always be the very wealthy multinational families and the peripatetics (those individuals who do not stay long enough in one jurisdiction to become liable for paying tax), who will require a tax neutral or low tax area to keep their wealth.
Furthermore, with the multi-layered financial transactions in today's electronic world, there is often need for a low tax or tax neutral jurisdiction to provide a safe haven - albeit for a short period of time - until the ultimate destination of the profits (if any) are available upon completion of the transaction.
The expatriate employee, working in an environment which attracted him with the lure of large tax-free salaries, will require a safe, stable environment to hold his funds and a marketplace which will keep those funds growing in line with the growth of the economy in the country he hopes to return to. The offshore islands provide this environment; in the last 10 years the Isle of Man has become the leading provider of life assurance offshore to meet such a market - a market which is still growing.
The City of London is one of the major recipients of the benefits of the financial services industry in Jersey, Guernsey and the Isle of Man. It is thought that something in the region of £40bn a year is cleared through London - most of it placed with London investment managers - and a similar amount in US dollars through New York, again being invested by New York and US investment managers, all arising from the British islands.
Jersey, Guernsey and the Isle of Man have kept up with change, unlike some of their competitors in other offshore environments. In spotting the changing market a number of years ago, they have become sophisticated financial environments for multi-faceted financial products. The days of the mainland evader arriving on the islands with a suitcase of bank notes are long gone.
Unlike other larger governments, the islands do not have the option to run budget deficits and use the funds raised to finance the attraction and development of corporate activity through subsidisation. Any government support on offer would be principally through application of the tax system. In fact, the convention surrounding the constitutional relationships with the UK is partly a recognition of the realities of Jersey, Guernsey and the Isle of Man's economic position.
The Isle of Man's right to legislate for its own internal affairs, including taxation, has been the basis on which the island has been able to forge its own position among international economies. It is financially self-sufficient, not requiring financial handouts from any country or international organisation. The UK government itself has made it clear, particularly in respect of the EU, by a constitutional statement to Europe, stating: "It would be unprecedented for Her Majesty's Government to interfere with the British islands' domestic legislation."
This is not to say we do not take the Organisation for Economic Co-operation and Development & EU tax harmonisation threats seriously. However, we feel that the implementation of those threats to interfere in our internal affairs lacks the authority required and in many instances smacks more of political shenanigans than economic reality.