This Is Guernsey

By Simon Tostevin

THE handing over of 4,450 names of wealthy Americans who have offshore accounts in Switzerland is a timely reminder for Guernsey’s finance centre, according to KMPG tax partner Tony Mancini.

He said that while banks in Guernsey were unlikely to face a challenge from America’s Internal Revenue Service and have to hand over US account holders’ details, as has happened to Swiss banking group UBS AG, the island could not afford to become complacent.

Mr Mancini (pictured) said the latest episode reinforced how vital it was that the island continued its policy of positive engagement with governments such as the US and the UK, along with the rest of the G20 and OECD.

‘This is quite a significant development,’ said Mr Mancini. ‘Much of Switzerland’s success as a finance centre has been built upon its banking secrecy laws.

‘This deal suggests that those laws are no longer as effective as they were once perceived to be, when allegations of tax evasion are involved.

‘This development, and the agreement between the UK and Liechtenstein, indicate how jurisdictions that have relied upon banking secrecy laws are coming under intense pressure from other governments.’

Under Guernsey law, which does not allow for banking secrecy, Mr Mancini said suspicions of such activity must be reported and it was therefore unlikely that a case would emerge in Guernsey.

‘Another difference between the two jurisdictions is that Guernsey has had an effective Tax Information Exchange Agreement with the US since 2006, whereas the tax treaty between Switzerland and the US does not currently contain provisions for the exchange of information.’

Douglas Shulman, commissioner of the IRS, has been very vocal in hailing the deal with UBS, although the authorities in the US were initially pressuring for the names of as many as 52,000 account holders.

‘This agreement sends an unmistakable message to the people hiding income and assets offshore.

‘The IRS will vigorously pursue tax cheats around the world, no matter how remote or secret the location.’

Observers of financial markets believe how the UBS list is used will be monitored closely by other governments looking to clamp down on suspected tax evasion as they experience rising deficits.

But Ernst & Young partner Graham Parrott doubted whether Guernsey would be targeted.

The most obvious place to consider from a Guernsey perspective would be the UK, he said, but from a constitutional position that would be unlikely, and there was also the recently announced ‘amnesty’ programme for offshore accounts, which might give HMRC what they are looking for anyway.

In any case, he said, Guernsey had nothing to hide, with strong anti-money laundering legislation and the adoption of the EU Savings Directive.

‘Transparency has been one of the key drivers in all the recent international initiatives leading up to the G20 summit and after, which have gathered pace following the credit crunch and financial crisis,’ said Mr Parrott.

‘And low-tax jurisdictions throughout the world, including many that were previously considered tax havens by reference to any of the definitions that are used, have been seeking to come to the party with a more open approach, signing TIEAs for example. In itself that is a possible concern. We have always put ourselves forward as being in the first division of financial centres. However, it is rapidly getting to the point where there is only one division in the league.’

He added that this increased competition and less obvious differentiation had come at a time when the world economy had slowed significantly.

‘But that is a two-edged sword since places which have been much more secretive, and have perhaps gained business as a result, will find that more difficult, so to that extent there is at least likely to be a more level playing field.’

Article posted on 24th August, 2009 - 2.30pm