Vistra makes acquisition in Singapore

Vistra, the international fiduciary services group, has announced its acquisition of  BSI Trust Corporation (Singapore) Limited from BSI Bank AG.  

The acquisition, approved by the Monetary Authority of Singapore (MAS) will see all BSI Trust Singapore's services and existing business transferred to Vistra by the end of January 2013.

The decision to sell the company is a reflection of the rapid growth of BSI Bank's wealth management portfolio over the past two years and the need to focus on these core advisory services.  BSI AG is one of the oldest Swiss Banks in existence and has since 1998 been owned by the Generali Group.

Vistra now provides its fiduciary services through a team of 350 employees in 25 offices across 19 jurisdictions.  Vistra is part of the OV Group, which includes Offshore Incorporations Limited Group (OIL), Asia’s leading company formation specialist and Vistra. The OV Group employs circa 500 professionals and claims to be the 3rd largest provider worldwide of trust and corporate services.

If you want to keep your tax advice confidential, use a lawyer rather than an accountant

In recent years, there has been a blurring of responsibilities between the legal and accountancy professions, particularly when it comes to tax advice.  Lawyers frequently advise on tax matters which would previously have been within the remit of accountants, and accountants often given advice on the legal implications of tax schemes.  The blurring of the lines becomes even more marked with the introduction of multi-disciplinary practices.  However, a recent Supreme Court decision has confirmed that if you want to keep your tax planning discussions with your advisers confidential, then you will need to instruct a practising lawyer, rather than an accountant or a non-lawyer tax adviser.

The UK Supreme Court has ruled that legal professional privilege (LPP) should only apply to communications between lawyers and their clients and not between clients and accountants, even when the accountants are giving legal advice.   So in essence, the identical conversation between a client and his adviser regarding his tax affairs will be covered by LPP if he is talking to a lawyer, but not if he is talking to an accountant.

In the case of Prudential plc v Special Commissioner of Income Tax, HMRC had served Prudential with notices demanding the disclosure of documents related to a tax avoidance scheme promoted by PricewaterhouseCoopers (PwC).   Prudential resisted disclosure on the grounds that the documents contained legal advice on tax matters, from, amongst others, the accountants PwC.  The Supreme Court rejected this, saying that LPP could not be extended without legislation to do so, and that to extend the concept of privilege through court interpretation would lead to unwelcome uncertainty in an area where there is clarity on what the current law means.  Lord Neuberger said:

"The suggestion that it should apply in any case where legal advice is given by a person who is a member of a 'profession [which] ordinarily includes the giving of legal advice' suggests to me that this is an inappropriate formulation for us to adopt, as it would carry with it an unacceptable risk of uncertainty and loss of clarity in a sensitive area of law.”

As far back as 1983, the Revenue Commissioners recommended the extension of LPP to tax advice given by accountants and tax advisers belonging to certain professional bodies, but this did not get governmental backing was never acted on. 

Not surprisingly, accountants are very unhappy at this situation. Michael Izza, Chief Executive of the Institute of Chartered Accountants in England and Wales, said:

"The current position on LPP is unprincipled and anti-competitive for individuals and businesses who we believe should be able to seek the best professional advice upon the same terms whether from lawyers, accountants or indeed other appropriately qualified professionals.  The way in which legal services are provided is changing as a result of the Legal Services Act with the creation of Multi-Disciplinary Practices.  As a matter of urgency, Parliament needs to find a way to resolve how issues such as LPP are addressed within these new structures."

It is perhaps difficult to justify the current situation, but unless and until Parliament see fit to change the position, lawyers will no doubt be making hay whilst the sun shines.

HSBC Guernsey cuts fund admin jobs

40 jobs are rumoured to be likely to be lost in Guernsey as HSBC Securities Services announces cuts in its fund administration arm.  The move follows outsourcing of business to Ireland and Luxembourg.

HSBC confirmed yesterday that it was restructuring its fund administration business, but did not confirm the number of job losses, and denied that it was pulling out of the island altogether.

Sarkozy to become a non-dom?

Politicians have taken every opportunity in recent years to lecture the public on the morality of tax avoidance, and French politicians have been amongst the most vociferous of those calling for an end to the perceived abuses perpetrated by tax havens.  It was therefore with a wry smile that I read today that a computer search by French police investigating corruption allegations against Nicolas Sarkozy, the former French President, revealed that he is preparing to move to London to set up a huge investment fund.  By hopping across the Channel he will be able to avail himself of the UK’s generous non-dom regime and avoid a potential top tax rate of 75 per cent in his home country. 

Leona Helmsley once famously said that “Only the little people pay taxes”.  Mr Sarkozy, it seems, is determined to prove her wrong........and right, at the same time. 

Inflexion Private Equity pulls off a double deal

Inflexion Private Equity has announced its investment in Sanne Group (“Sanne”), the Jersey-headquartered fiduciary services business, and at the same time Sanne’s proposed acquisition of State Street’s capital markets corporate business.

Sanne had its origins with Jersey law firm Crill Canavan, and has quietly grown to become a significant provider of fiduciary services, with a team of around 160 people.  In addition to its headquarters in Jersey, Sanne has offices in Luxembourg, London, Dublin, Dubai, Hong Kong and Shanghai. 

State Street’s capital markets corporate business had its origins in another Jersey law firm – Mourant Ozannes.  It was sold to State Street by Mourant in 2010 as part of a wider acquisition of the Mourant International Finance Administration (“MIFA”) corporate and fund administration business.   It is believed that the sale will enable State Street to focus on its core alternative fund administration business.

Dean Godwin, who was previously with State Street and MIFA, joined Sanne last year, and has been appointed as its CEO.  The acquisition therefore sees him re-joined with his former team, and will help with continuity and integration.

The combined business, which will offer three core business lines (corporate and institutional, fund administration and private wealth) will have roughly 200 employees, making it one of the largest independent fiduciaries in the Channel Islands, and the market leader in capital markets vehicles.

The acquisition of the State Street corporate business is subject to regulatory approval and Sanne hope to have completed the transaction by the end of April.

The transaction was led by Richard Swann and Flor Kassai, who will join the board as non-executive directors.

Cypriot bail-out likely to be delayed as report into banking recapitalisation is not yet ready

The Cyprus Central Bank has announced a delay in completion of a study into how much cash its banking system needs as part of an EU bailout package.  The report was expected to be completed on 18^th January but is not yet finalised, and there was no indication of when it is expected to be available.

The delay will come as a blow to the country, which applied for EU financial aid back in June 2012, but which cannot finalise a bail-out loan from the Troika until it has clarity on the amount required for bank recapitalisation.  Eurozone finance ministers are due to meet tomorrow and it had been hoped that final approval of a draft agreement could be obtained at that meeting, but this now appears to be a forlorn hope given the absence of critical financial information.

Lib Dems ponder minimum UK tax on global profits for multinationals

According to an article in the Telegraph, the Lib Dems are discussing plans to introduce a minimum tax charge on multinationals based on their global profits.  The idea is a response to the public backlash against companies such as Amazon, Starbucks and Google which have recently been exposed as paying virtually no corporation tax in the UK, despite huge revenues.

Tim Farron, the party’s president, said “If these companies are structuring their affairs in a way that means they make no profit in the UK, then it’s right to look at the global profit figure – that is made public.”  He said that he thought a rate of around 25% on the profits a business made in the UK would be “about right”, but that discussions were still at an early stage and the details had not been set.  Exactly what Mr Farron meant by this latter statement is not clear – as he himself acknowledged, the reason that the companies are not currently paying tax in the UK is that they are structuring their affairs so that the UK arms are not profitable, siphoning what would otherwise have been UK taxable profits into lower tax jurisdictions, usually through the payment of fees for intellectual property right usage.  I can only assume that he meant that he supported a payment of 25% on that proportion of global profits which correlates to the UK’s proportion of global sales?

Whatever the detail of the proposal, the broad intent is clear. Critics are already arguing that the policy would make the UK less attractive to these global firms, and that a decision to pull out of the UK could lead both to a catastrophic loss of jobs and of the contribution these companies do make to the Exchequer through the significant amounts of National Insurance, business rates and other taxes that they do pay on their operations here.  I think these arguments do have merit but are overstated – the fact of the matter is that the UK is a big and important market for companies like Amazon, and they would not withdraw lightly, although they could certainly scale down some of their operations. 

The other considerable area of uncertainty would be the reaction of the EU (and for that matter the G20) to the introduction of such a measure.  It is by no means clear that they would permit the introduction of a tax and it is a virtual certainty that territories such as Netherlands, Luxembourg and Ireland (all EU members who benefit from setting up multi-national tax planning structures) would be vehemently opposed.

It seems to me that these discussions (which appear only to have tepid support from Vince Cable, who is much more focused on trying to win the Tories round to the idea of his proposed mansion tax) are more an exercise in pandering to public opinion rather than a serious proposition which they expect ever to see coming to fruition.

IOM announces comprehensive taxation review

The Isle of Man government has unanimously voted to undertake a comprehensive review of all aspects of its taxation over the next three years.

However, the review is perhaps not as all-encompassing as it at first sounds, as the government was keen to underscore that the review will not lead to the introduction of capital gains tax or an inheritance or death tax, and that the island's zero-ten corporate tax regime will remain.  This reassurance was doubtless given to avoid scaring away new business as a result of uncertainty regarding long term business taxation, although it remains a possibility that some of the companies which currently pay 0% tax under the zero-ten regime could move in to the 10% bracket.

The aim of the review is both to boost revenues and make the tax system more simple to administer, and was felt necessary following the revision of the long-standing value-added tax-sharing agreement with the United Kingdom.

IRS issues "final" FATCA regulations amongst growing unease over IGAs

The IRS yesterday issued the long-awaited set of “final” regulations for FATCA (although technically they could still be changed at any time until published in the Federal Register, expected to be on 28^th January).

FATCA was enacted by Congress in 2010 as part of the HIRE Act, and provoked an immediate backlash among many foreign banks, which have baulked at the complexity and cost of providing the information required to the IRS. Some attempt has been made by the IRS to address the concerns in the final regulations (such as by simplifying arrangements for groups of FFIs and clarifying the registration requirements for investment entities), but the provisions remain extremely onerous.

Key to the IRS’s attempts to streamline processes has been its efforts to conclude intergovernmental agreements (“IGAs”) with foreign governments, based on two different models.  The first model enables FFIs in jurisdictions that have signed Model 1 IGAs to report the information about U.S. accounts to their respective governments, who then exchange this information with the IRS, rather than having to enter directly into agreements with the IRS themselves. The second model IGA requires FFIs to register with the IRS and report the information about U.S. accounts required by FATCA directly to the IRS, and is designed solely to get round the fact that giving the information would be illegal absent a legal requirement for it to be done.

The IGAs themselves, however, are proving to be very controversial.  It is clear that they do not lessen the information gathering and reporting burden on the FFIs at all and, on one construction, they make the compliance burden considerably worse for US financial institutions, not better, as many of the agreements contain bi-lateral obligations requiring the US FFIs to share information on accounts held for citizens of the counter-party country.  In effect, it is introducing FATCA as a global template, despite the fact that it is widely opposed and not yet tested in practice.

Others are far more sceptical that the bi-lateral element of the IGAs is anything more than window-dressing, and do not believe that the US will ever deliver what they are demanding of others, citing in support the fact that Article 6 states that:

1.    Reciprocity. The Government of the United States acknowledges the need to achieve equivalent levels of reciprocal automatic information exchange with the United Kingdom. The Government of the United States is committed to further improve transparency and enhance the exchange relationship with the United Kingdom ""by pursuing the adoption of regulations and advocating and supporting relevant legislation"" to achieve such equivalent levels of reciprocal automatic exchange.”

So, in essence, the reciprocal element will happen if and when Congress decides to enact it (and bear in mind there will be a lot of lobbying against it from the US financial institutions who would bear the brunt of the burden).

So far, according to the US, 7 countries have signed or initialled IGAs (the UK, Mexico, Denmark, Norway, Ireland, Switzerland and Spain) and they claim to be in negotiation with around 50 more countries.  It is notable, however, that many important territories such as Germany, France, Italy and Spain do not yet appear to have signed up, despite stating their willingness to a year or so ago.  No word has been given for the length of time being taken to get them to the stage of signing agreements – perhaps a reflection of the complexity of the issues that are now being considered?

Crossland Private Office and Bedell Trust team up to offer Family Office Services

The Crossland Private Office (the family office of David Crossland, the man behind Airtours and Going Places) has teamed up with Bedell Trust to offer its services to other wealthy families.

CPO was set up 10 years ago in Jersey and its directors believe that the experience which the team has developed since then is something which other wealthy families would like to access.

If CPO had decided to offer its services to other families itself, it would have needed to obtain the necessary regulatory licences in Jersey, and to have in place the infrastructure required by the regulations.  By joining forces with established trust company Bedell Trust, CPO not only avoids the necessity for its own licences, but will also be able to access clients through Bedell’s offices in the Channel Islands, London, Geneva and south-east Asia. 

New Cayman Premier on Bridge-Building Mission to UK

The new Cayman Premier (Juliana O’Connor-Connolly) and other government officials are flying to London to meet the UK’s foreign office minister, Mark Simmonds, on Monday and Tuesday.

With just five months of the interim administration’s term to go before elections are held, some Caymanians have been questioning whether the trip would serve any useful purpose, but there is certainly a lot of bridge building to be done to restore good relations between the two territories following a torrid period of bad tempered exchanges when McKeeva Bush was in post.  Government minister Mark Scotland said. “The visit being made in the next week is not simply about the next few months, it’s about mending and rebuilding the relationship with the FCO and the UK because of what’s happened in the last few years and then strengthening it for the time going past the upcoming election.”

The delegation will doubtless be trying to smooth the waters, but will also need to discuss Cayman’s budget situation, which remains precarious.  It is not yet clear whether the Island will need to request an increase in the Cayman Islands Government’s overdraft facility, but the picture will become clear within the next couple of weeks, with January being a critical period for financial services revenues.   Cayman’s budget is being scrutinised this week by the FCO’s economic advisor Richard Holmwood, who is currently in Cayman.   

Grant Thornton to be appointed Receiver of Axiom Legal Financing Fund

Faced with a storm of criticism from shareholders, the directors of the embattled Axiom Legal Financing Fund have reluctantly agreed to the appointment of Grant Thornton as receiver, rather than KPMG which had been the directors’ choice.

In a letter to shareholders on Tuesday, the directors confirmed that they will support the application to have a receiver appointed for the fund at a February court hearing.

KPMG had been appointed in October to conduct an audit of the fund’s assets following fraud allegations which had been made, principally by OffshoreAlert, and for this reason the directors thought that they would be best placed to act as receivers.  However, it became clear that a significant majority of investors opposed this view because of concerns over independence and fee levels, and so the directors have reluctantly bowed to investor pressure to support the appointment of Grant Thornton instead.

Clydesdale Bank to close Guernsey operations

Clydesdale Bank International has announced that it is to close its Guernsey operations, through a gradual wind-down which is not expected to be complete before next year.  The news comes after a global review which has led to a decision that the Australian owned bank should focus on its core business, and will eventually lead to the loss of 19 jobs.

The Guernsey branch of the bank, which primarily provided services to expats and Guernsey residents, has stopped accepting new business and will be transitioning its existing customers.

Richmond Fiduciary open in Shanghai

Guernsey-headquartered trust company Richmond Fiduciary Group has opened a representative office in Shanghai. The office will be led by Jing Zhang, a Shanghai born and educated professional who is fluent in Mandarin, English and Italian.   The company, which was established in 1988, now employs more than 30 staff worldwide, including Hao Wang, Senior Partner of RayYin & Partners, who is retained by Richmond as a consultant to explain the nuances of international trust laws to Chinese individuals and professionals. The move reflects a growing trend amongst Channel Islands fiduciary business to look towards Asia for growth rather than relying primarily on the more mature European markets where there is an increasing emphasis on clamping down on legitimate opportunities for tax avoidance.

Play.com close retail business and withdraw from Jersey following abolition of LVCR

147 employees in Jersey are to lose their jobs within the next few months as Play.com decides to close its retail business and leave Jersey following last year’s abolition by the UK government of Low-Value Consignment Relief for imports from the Channel Islands.

Play.com was one of the highest profile companies operating from Jersey utilising the LVCR to import CDs, DVDs and other low value goods into the UK without the need to pay VAT, and became one of the UK’s largest online retailers.  It was sold to Japanese owners for £25 million in September 2011.

The company will also shed 67 UK jobs as a consequence of its withdrawal from direct retailing business.  200 or so staff will remain employed in the UK, focusing on developing the company’s marketplace business.

It is believed that the abolition of LVCR has already cost Jersey about 600 jobs – a significant number in a small jurisdiction which currently has a record 1,800 people out of work.

Tax Evasion Conviction forces Closure of Wegelin, Switzerland's Oldest Bank

In a shock move, Wegelin, Switzerland's oldest bank, is to shut its doors for ever after pleading guilty in a New York court to helping over 100 Americans evade over a billion dollars in taxes over a 10 year period.

The bank, which was established in 1741, admitted in court that it had intentionally opened accounts for US citizens to help them avoid tax and has been fined $57.8m. 

Otto Bruderer, a managing partner at the bank, told the court: "Wegelin was aware that this conduct was wrong.....from about 2002 through about 2010, Wegelin agreed with certain US taxpayers to evade the US tax obligations of these US taxpayer clients, who filed false tax returns with the Internal Revenue Service".

It becomes the first foreign bank to plead guilty to tax evasion charges in the US, although it is certainly not the only bank under investigation in a clamp down by the US Justice Department.

Four years ago UBS agreed to pay a $780m fine to US authorities in relation to tax evasion charges and agreed to reveal the details of US account holders, but it was not technically convicted of any crime – agreeing voluntarily to pay a fine in exchange for charges being dropped.

Credit Suisse, the other huge Swiss banking monolith, remains under investigation by the US authorities.

It had been expected that Wegelin would fight the charges on the basis that because it only had branches in Switzerland, it was bound only by its home country's banking laws.  However, the surprise move to throw in the towel will come as a blow to Swiss banks and to the Swiss government, which has been trying for months to negotiate a deal with the US which would protect Switzerland's banking secrecy.

Cyprus bailout talks deadlocked on issue of privatisations

Talks between Cyprus and the Troika negotiating a possible bail-out of the Cypriot economy are stalling because of a fundamental disagreement over privatisation of state-owned companies.

President Christofias has said that he will not agree to privatizations and that if the bailout creditors insist on privatizations as a condition of a deal, the accord would have to wait for the next government to sign it.  Cyprus holds presidential elections on 17th February and Christofias is not seeking re-election.  However, Cyprus' eurozone partners are scheduled to decide on the country's bailout deal on 21st January, which leads to an obvious timing issue.  The Cypriot government claims it has enough cash to pay its bills until March 2013, and the new President will take the reins on 1st March.  This leaves precious little time for any new incumbent to do all that is necessary to avert disaster.

It is not yet clear exactly how much cash the crippled Cypriot economy requires.  External estimates put the figure required to shore up its banks at around €10 billion (more than half the value of the national economy) but the Cypriots claim the real figure is much lower.   The picture should be clearer later this month, when international investment firm PIMCO and auditors Deloitte finish a review of the Island's financial situation.