Islands governments working successfully to adapt to the new world of international finance
Many of the strengths that previously attracted GPs to the islands remain relevant, and the islands’ governments are successfully working to adapt to the new world of international finance.
Both Guernsey and Jersey have been among the most proactive specialist financial centres in preparing for AIFMD. They’ve been in active dialogue with European policymakers and regulators, in order to put the regulatory frameworks in place that will give GPs based on the islands the flexibility of a dual approach.
From a tax perspective, the islands retain the tax neutrality of a fiscally transparent LP structure, but have a significant and growing number of TIEAs in place with other governments. With respect to FATCA, they’re also looking into following the intergovernmental approach pioneered by the UK and other European countries, which will simplify compliance. The OECD made both islands early members of its ‘white list’ in 2009, which included very few offshore IFCs at that time. Membership rewarded their meeting the OECD’s internationally agreed tax standard.
When it comes to the increasingly important topic of corporate governance, both islands have communities of well-qualified directors. In both cases, the principles of good corporate governance are enshrined in law.
Islands with unparalled service infrastructure strength
Equally importantly, the islands have strong service infrastructures. The major accountancy and law firms have local presences, as do international private equity administration companies. There’s also a large number of international banks and a big pool of educated financial services employees.
All of this is available at competitive prices. Office rents and salaries are inexpensive relative to other financial centres.
For these reasons, private equity CFOs continue to favour the Channel Islands. In a recent survey, CFOs ranked Guernsey and Jersey first and second among European private equity domiciles.*
[*] Helping the industry reach new highs. Survey of Chief Financial Officers. 2011. Private Equity News/State Street.
Collaborative leaders with vision and insight
Looking further to the future, the island’s governments are already looking into how they will prepare for the rise of SAAAME countries, both as private equity managers seek to raise funds from their institutional investors and as they invest in these countries’ fast-growing economies.**
The islands are examining what they need to facilitate fundraising and investment by private equity houses into the regions.
**Rise and connectivity of the emerging markets (SAAAME), 2012. PwC Project Blue.
How PwC supports clients and industry
Our deep and constantly expanding expertise has been gained through working with clients and seconding our people to other firms in the PwC Network and into industry. This approach allows us to understand, anticipate and be well prepared to meet future client needs. We have dedicated specialists able to help with the following:
Executive tax services for private equity
Proactively addressing clients’ UK and International tax planning and compliance needs
Private equity risk management
Demonstrating the value of risk management to investors regulators and administrators
Alternative Investment Fund Manager Directive (AIFMD) in private equity
Regulatory consulting – compliance with emerging regulation for continued pan-European investor marketing beyond 2013
Foreign Account Tax Compliance Act (FATCA) for private equity
Understanding and managing the US approach to combating offshore tax evasion
Our support starts with all the core audit, tax and advisory services needed by the PE industry:
- Statutory and non-statutory audit of private equity limited partnerships, general partners, co-investors, feeders, holding companies and investment manager entities.
- Agreed upon procedures around carried interest calculations.
- LPA reviews for early identification of fund accounting issues, assistance in accounting policy selection and GAAP analysis.
- Process reviews, accounting impact analysis.
- Tax reporting to private equity investors and stakeholders allowing them to meet their UK, US, German and other local tax filing requirements.
- Preparation of tax returns for fund vehicles, GP entities, carried interest vehicles and manager/advisor entities.
Interaction of fund and portfolio companies. Carried interest arrangements, GP tax position, manager company or LLP taxation – all feeding in to tax position for private equity executives and investors.
Why do we do it:
Investor demand – Increasing focus, especially from US and institutional investors. Increasingly the quality of tax information reported to investors can impact the relationships a private equity manager maintains with its clients (investors require more detailed information than historically).
Legislation – Company Law provides limited exemptions from the audit requirement for corporate entities. Limited Partnerships in the UK and Channel Islands typically have no statutory requirement, although this is subject to change in the UK.
Tax transparency – Private equity structures are designed to be tax neutral for investors and can provide benefits for the private equity manager. These objectives often rely on the use of transparent vehicles but can require more detailed and complex reporting. An understanding of the structure and the objectives is required to deliver the benefits.
Regulation of investment manager – Fund, GP, manager, carry and investors all usually need to report income/gains annually. GFSC in Guernsey (120 day filing), JFSC in Jersey (120 day filing), FSA in UK (80 business day filing of financials plus 4 month filing of client money and assets audit report).
How we do it
Working with private equity manager’s finance team, legal counsel, deal teams, third and party administrators.
Investment transaction reviews, capital call testing, distribution testing, reworking of carry calculations.
Valuation of investments, discuss performance of investments, review client’s calculation and workpapers and challenge assumptions made.
Review of related party transactions, management fees and investment existence.
Our tax teams work with our clients and administrators to ensure efficient information gathering and reliable processing arrangements.
Our outputs are clear, informative, user friendly and tailored to the recipient - be that HMRC, private equity management or investors.