The past year has been a difficult one for the offshore financial services industry, but amid the troubled business conditions and international demands for enhanced levels of oversight and improved transparency, Jersey’s longstanding willingness to embrace the highest international standards of supervision and its readiness to co-operate with onshore jurisdictions to ensure tax compliance have left it well placed to thrive as the private equity industry recovers.
In the past Jersey has sometimes struggled to overcome the confusion elsewhere between tax havens and international financial centres, of which the island is one, that implements its own tax strategy without trying to facilitate tax avoidance by its clients. However, Jersey prides itself on a level of transparency that insists appropriate tax liabilities are disclosed at the origination of a transaction and its completion.
Over the seven years since its adherence to the standards established by the Organization for Economic Co-operation and Development on tax transparency and exchange of information, the island has signed as many as 17 tax information exchange agreements with other countries, based on the OECD’s Model Convention template, which has become the international norm. In addition, it has further agreements in the pipeline under negotiation that should give it more Tieas than any other offshore jurisdiction.
As a result, it was no surprise to close observers of the offshore world that when last April the G20 group of countries called on the OECD to assess the progress of jurisdictions round the world on tax co-operation, Jersey was immediately place on the white list of countries that had not only signed up to the international standards but had implemented them to a satisfactory level – in contrast to some of its global competitors for fund business.
The island’s regulator, the Jersey Financial Services Commission, pays close attention to the structures proposed by industry members in order to ensure they do not stray over the line of acceptability into tax avoidance structures, and in the event of doubt will not give authorisation. In addition, if the Commission does not understand the commercial rationale for a fund to be established in Jersey, they will ask to see the tax advice that has been obtained on the fund.
Like other fund administrators in Jersey, Volaw Trust & Corporate Services also requires clients to provide copies of all the tax advice they have obtained if any element of a transaction is particularly complex or unusual, so that it can always explain the commercial rationale of the transaction. The regulator may require explanations of the purpose and operation of structures either when the fund is being set up or at subsequent regular inspections of licensed financial services businesses.
Jersey service providers have adopted extremely robust procedures for due diligence and identification of the beneficiaries of transactions and structures to minimise the risk of supporting a tax avoidance transactions, and its money-laundering controls are based on international standards.
The island’s presence on the OECD’s white list – along with fellow crown dependencies Guernsey and the Isle of Man – has vindicated its determination to embrace the global drive toward tax compliance. Acknowledgment as a leading offshore jurisdiction has provided comfort and certainty to potential clients, and has contributed to the recovery in business underway since the middle of the year.
Tom Amy is head of the funds and SPV group at Volaw Trust & Corporate Services, and Kate Anderson is head of the funds legal team at Voisin in Jersey