Guernsey is close to presenting its Foreign Accounts Tax Compliance Act (FATCA) tax agreements with the US and UK to parliament.
The fund domicile’s chief minister, Peter Harwood, is finalizing a draft IGA with the UK, according to sources. These reciprocal agreements provide Guernsey financial firms, including private equity houses, a way to report through their local authorities as opposed to having to create a direct relationship with the UK’s tax authority, which may trigger local data privacy legal concerns.
Harwood also revealed that the domicile’s IGA with the US was “almost concluded” too.
As the US and the UK seek to clamp down on tax avoidance, offshore jurisdictions have been in talks with US and UK officials about entering into bilateral tax reporting agreements, known as intergovernmental agreements (IGA), in order for the domicile’s financial firms to meet their FATCA obligations.
The agreement also looks at renegotiating the Double Taxation Treaty the island has with the UK. As part of this renegotiation, Guernsey-based UK tax residents will have an alternative reporting arrangement available with UK tax authorities. Details of the reporting arrangements will be published later this year, which will kick off a consultation period with stakeholders.
This increased reporting burden has led some to question whether or not the domicile will lose its attractiveness on minimal reporting requirements. However, lawyers have argued the reporting burden of the UK's version of FATCA does not outweigh the obligations of the Alternative Investment Fund Managers directive (AIFM) that onshore EU vehicles face.
“In the greater scheme of things when you look at the desirability to have a non-EU structure it will outweigh these reporting obligations,” said one offshore funds lawyer.
Guernsey has followed in rival domicile the Isle of Man’s footsteps which earlier this month said that its twin FATCA negotiations are “substantially complete.”
The information exchange deals are designed to provide US and UK tax authorities periodic reporting of offshore accounts held by US and UK taxpayers. Firms failing to comply with FATCA and similar legislation elsewhere face tax penalties on certain payments travelling outside the US or the UK.