Like for like

Like for like The competitive advantages offered by the offshore world to businesses seeking to list on AIM have been well documented in recent years, as the number of non-UK companies listing on the London public markets has continued to grow.

Historically core offshore centres such as Jersey, Guernsey, the Cayman Islands, the British Virgin Islands (BVI) and the Isle of Man have to some degree competed on their differences in order to attract these businesses to their shores. This has tended to make choosing the right offshore jurisdiction somewhat daunting for those tasked with making the choice of whether and, if so, where to incorporate their listing vehicles.

Inevitably, of course, there will always be some differences between these offshore centres and the benefits and solutions they provide. But there is an increasing convergence among the key offshore jurisdictions, a common approach to taxation and corporate legislation that is tending to level the offshore playing field.

Tax returnsMany of the AIM businesses we see offshore do not operate in, or bring income into, the UK, and therefore seek to manage and control their listing vehicles in tax-neutral jurisdictions.

A general commonality between many of the tax benefits afforded by going offshore has long been recognised. In the BVI and Cayman, for example, there is no income tax, corporation tax or capital gains tax. In Jersey and Guernsey there is similarly no corporation or capital gains tax. However, in the Channel Islands the income tax position was until recently slightly different in that companies typically relied on their exempt company status to ensure they paid no local income tax on non-local source income.

An example of the move towards a greater offshore alignment was the introduction by Guernsey in January of a new zero per cent rate of income tax that will apply to virtually all companies. Jersey will follow in January 2009. This will broadly mirror the current position in the Isle of Man and bring the Channel Islands into line with their Caribbean counterparts. As such, businesses aspiring to list on AIM will soon find still fewer differences between the tax environments found in these key offshore centres, thus hopefully simplifying their tax planning processes.

Returns to investorsOffshore corporate laws, while robust and using concepts familiar in English law, frequently apply these concepts with an offshore touch. Most importantly, perhaps, is the flexibility afforded by many offshore jurisdictions to companies wishing to make returns to investors, including by means of share buybacks or the redemption of shares. For an AIM company contemplating a share buyback in particular, this can obviously be very advantageous.

For companies incorporated in Cayman or the BVI, shares can already be repurchased or redeemed from a wide range of sources. Similarly, both Jersey and Guernsey also currently offer considerable flexibility in this regard for no-par-value companies. However, new legislation passed in both Channel Islands, and expected to come into force in mid-2008, will see a move towards a cashflow solvency test allowing the repurchase or redemption of shares by all Jersey and Guernsey companies (including par-value companies) out of any source.

DistributionsIn terms of distributions, the same 2008 legislation in Jersey and Guernsey will bring both islands further into line with the current position in BVI and Cayman.

Jersey and Guernsey will both move away from the current requirement to make distributions from realised or unrealised distributable profits to a cashflow solvency test, allowing distributions to be made out of any source (other than from the nominal capital account or the capital redemption reserve). This means that distributions will be permitted out of capital, without the need to obtain either shareholder or court approval for a reduction of capital, as is currently the case.

The importance of a listed company’s ability to make returns to its investors cannot, of course, be underestimated. As the Channel Islands and the Caribbean islands move closer in terms of the flexibility afforded on the buyback and redemption of shares, and on the making of a distribution, businesses will have even greater freedom to choose the offshore jurisdiction that is right for them from a commercial perspective.

Financial assistanceFrom a financial assistance point of view, the growing uniformity of approach between some of the key offshore centres is evident.

There is no concept of unlawful financial assistance in the BVI or Cayman and, indeed, a BVI company is expressly permitted by the Business Companies Act 2004 to give financial assistance in connection with the acquisition of its own shares. In Guernsey, similarly, financial assistance is not unlawful if permitted by the company’s memorandum or articles and if balance sheet and cashflow solvency tests are met. In January this year Jersey, too, left unlawful financial assistance behind for both private and public companies, so offering its AIM-listed companies the same real edge in the London market as many of its offshore counterparts.

There are, of course, many reasons why companies choose an offshore solution. For many the decision will be tax-driven. But at the same time investors look for companies incorporated in stable environments where regulatory frameworks are robust and where the corporate legislation is both up to date and flexible.

There will, inevitably, always be reasons for choosing one offshore jurisdiction over another, but the increasing parallels between these jurisdictions in terms of their taxation and corporate legislation can only make it easier for the AIM companies of the future to find the offshore homes that best suit the nature of their businesses, the locations of their existing operations and existing service providers that can add value to the structure and, ultimately, the preferences of their continuing and prospective shareholders.

Marc Yates is a partner and Sara Johns a managing associate at Ogier in Jersey