Jersey has long been a centre for the finance industry to establish administrative bases to invest into the UK and so too has it been crucial for the real estate industry.
While it remains a tax-efficient hub from which to do business, its attractiveness as a place for investors in UK structured vehicles is coming under pressure.
New regulation and competition from other tax-efficient jurisdictions such as Luxembourg, as well as heightened reputational caution from investors, are all factors being considered by investors and advisers active in the Channel Islands.
Some of those most engaged in the pressing topics surrounding the jurisdictions’ competitiveness and status gathered at The Shard, SE1, for Estates Gazette’s Finance Talks roundtable to discuss the threats and opportunities facing the islands.
Tax advisers from PwC and Deloitte joined boutique fund advisory firm Hodes Weill & Associates, offshore law firm Carey Olsen and trade body Jersey Finance.
All parties agree that Jersey remained crucial to inward investment and was becoming increasingly relevant to new investors from Asia and the Far East. “Malaysian, Singaporean, Indonesian and Chinese investors and sovereign wealth funds looking to take on large assets that they are looking to hold for a long time, where they are partnering with an asset manager or developer in the UK, are often using a Jersey vehicle,” said Robin Smith, banking and finance partner at Carey Olsen.
“They like the flexibility of it, which is not too complex and not highly regulated and the certainty that is provided by zero tax within the jurisdiction. They are private rather than public structures and we have seen a lot of that for inward investment into the UK.”
Ensuring that such investors are engaging with Jersey structures is in part a question of education and in part a case of familiarity.
“A lot is about education and explaining to them why an investment is or should be in a Jersey structure,” said Leonie Webster, director of real estate tax at Deloitte.
“For some it is a case of what they have bought being a Jersey company or a Jersey-based trust and they have to be accountable back home, explaining why something is structured as it is.”
In order to understand such complexities properly, investors have been looking to exemplar deals to learn best practice and take ideas.
“There is an interest from Asian investors in unpicking certain deals and aiming to understand how they were done and what ingredients will be of interest to them that they can use,” said Richard Nunn, business development director of Jersey Finance.
“Specifically that means the type of contract that is used and which elements were in different jurisdictions and look to replicate that.”
The Alternative Investment Fund Managers Directive regulations introduced in 2011 have in part restricted the marketing of Jersey-based funds to EU member states and have meant that in order to do so, private placements have had to be used that fall within regulatory boundaries. This has in part given some advantage to Luxembourg, from which funds can market more broadly.
However, Smith said that had not been as big a problem as once feared. “Those that actually want something that is going to give broadly equivalent regulation but outside AIFMD might choose to go to Jersey rather than Luxembourg and it has been quite surprising just how much can be raised using just he private placement regime. The [fund raising] passport is seen as the Holy Grail but we have clients that have raised huge amounts and it hasn’t hindered them at all,” he said.
Jersey and other tax efficient jurisdictions are continually at threat of a government crackdown and prospective changes in legislation. At present, however, it is just as much a case of investors’ awareness of any reputational damage for being seen as immorally avoiding tax as government pressures that are of utmost consideration.
“The wind is always in your face, it’s just a case of how much it’s blowing. Various countries have blacklists, grey lists and white lists and Jersey tends to not be on many blacklists, but it is probably not on that many white lists either,” said Angus Johnston, partner of real estate tax at PwC.
“It’s a question of the extent of the appetite for locking these things down at any given time and at present there doesn’t seem much of an appetite from a UK perspective.”
A drive for optimum tax efficiency above all else was something that Will Rowson, partner at Hodes Weill, was seeing as a priority among investors and managers, although not everyone agreed.
“No investors want to pay more tax. They aim for the best tax structure which fits in with whatever issues they have from an outward, reputational point of view and are guided by the path others have taken before them,” he said.
There was, however, a general feeling that investors, particularly those with a public facing brand, were becoming more aware of prospective reputational damage associated with tax efficiencies and offshore structures.
“Ten years ago every deal would be the same structure for everyone, whether an opportunity fund based in Europe or an Eastern sovereign investor. Now things are much more bespoke from a regulatory perspective and moral stance. Anyone who feels accountable to public option is involved, that means some of the sovereigns but certainly not all of them, large corporate pension funds and anyone who has a brand presence,” said Johnston.
It appears that Jersey’s status as a tax efficient hub for financial and real estate investors remains solid but the way investors are viewing offshore structures is evolving.
