Guernsey is set to add foundations to the "toolkit" available to its legal and financial services industry. This is the second part of an article examining the thinking behind the new legislation and how advisors might use these structures.

Guernsey is set to add foundations to the "toolkit" available to its legal and financial services industry. This is the second part of an article examining the thinking behind the new legislation and how advisors might use these structures.

A “clean sheet”

In looking to tap markets farther afield, what Guernsey is exporting is a hard-won reputation as a jurisdiction which is world-class both in terms of its intellectual capital and regulatory standards, and which manages to balance innovation with robust oversight. In fact, it is hoped that the strength of Guersey’s regulation will go some way to rehabilitating the image of the foundation structure. “A common criticism of foundations is that they are secretive vehicles and the antithesis of transparent, proper business. Critics take the use of foundations as an indication of bad intentions,” said Alasdair Davidson, partner at Bedell Cristin. As such, he believes that there are two major selling points to the Guernsey Foundation. The first is that every foundation will be registered and can only be formed by a regulated fiduciary, and the second is that the island will have “full regulatory oversight of what’s going on and of the people behind the foundations.”

Guernsey is looking to leverage what Andreas Tautscher of Deutsche Bank calls its “well-regulated, clean reputation, its breadth of capability and its longevity” in managing complex wealth structures. Clearly, clients will be looking to capture tax efficiencies from the latest additions to Guernsey’s legislature, but the addition of image rights and foundations to the island’s statute books are emphatically not about tax avoidance, those on the island are at pains to emphasise.

Guernsey has made strenuous efforts to increase its number of Double Taxation Agreements and Tax Information Exchange Agreements as an indicator of the island’s commitment to being a “top-drawer” jurisdiction. Guernsey, like its peer IFCs, is anxious to shake-off ill-founded public perceptions about so-called tax havens and the island’s promoters like to point out that it was actually praised by the Foot Report for the robustness of its regulatory regime.

While Guernsey may be happy to join forces with Jersey in fighting misconceptions about IFCs, the two sister jurisdictions do of course exist in healthy rivalry – when one is the first to introduce new legislation and products the other is usually not far behind with its own version. For example, Jersey was first to introduce the Incorporated Cell Company, and this was then “copied” by Guernsey. In such cases the first jurisdiction to launch gains “first-mover” advantage of course, but the “following” jurisdiction could also be said to benefit from the experience of others. Guernsey is hoping that this will be the case with foundations, especially since its later entry to the market has allowed it to “tweak” the concept and introduce a few new elements to the mix. “We’ve tightened it all up, so hopefully we’ve left no loose ends,” said Peter Niven, erstwhile chief executive of Guernsey Finance, the island’s promotional body. Niven stepped down at the end of June, but remains with Guernsey Finance as a consultant until the end of the year (to read an exclusive interview marking his departure click here).

This time, it seems, Guernsey is happy to follow its neighbour and rival Jersey in launching its own version of the foundation structure. Guernsey will, after all, be a trailblazer when it is the first jurisdiction to formalise registrable image rights later this year and it is widely expected that Jersey will respond in kind in due course.  In Niven’s view, this evolution and counter-evolution of structures can actually be a really positive thing, as it promotes the constant improvement of the “toolkit” available to financial and legal professionals. He also sees it as a natural part of the competition between IFCs, noting that when Guernsey introduced Protected Cell Companies it was rapidly copied by a host of other IFCs. With typical pragmatism, Niven concludes that imitation really is the sincerest form of flattery in the fast-moving world of the IFCs. “All of us copy what’s out there… you can’t keep anything secret,” he said.