To its credit, the Isle of Man has been pretty good at reading the tea leaves when it comes to what HMRC is looking for. It read the signs on new QROPS legislation when others dug in their heels and has for some time, slowly but surely, been repositioning itself to cope with a world that has tax evasion and anti-money laundering firmly in its sights.
Success with the Isle of Man will no doubt spur HMRC on to cut similar automatic deals with the Channel Islands and other British offshore territories. There are also signs that other tax authorities will be buoyed by HMRC’s success, which is fashioned on the US FATCA model.
Indeed in his recent Budget speech, Manx treasury minister Eddie Teare, noted that agreements signed with the UK and US under FATCA are just the beginning, and that the FATCA model "will ultimately be rolled out within Europe and beyond, and it is very likely that it will replace the planned second EU Savings Directive”.
Tainted by association
While such changes are set to produce additional paperwork and a few nervous clients, there are also long term benefits for our sector. After all, it’s not done our profession any good to be tainted — rightly or wrongly — by the constant association of tax evasion with the use of offshore financial centres.
The vast majority of international clients are not out to cheat the taxman or launder money: they are looking for a central, secure home for their money that complies with local and international tax rules. Again, I can’t argue with Teare when he said this latest deal would provide confidence to international investors that they are “dealing with a regime which complies (with) global standards of best practice”.
Yet in my view we are looking at much more than a few centres smartening up their act in terms of best practice. We are witnessing a potential sea change in the world of offshore financial centres. It will be a world where only those centres with the highest levels of regulatory oversight and the will to co-operate with tax authorities on a global scale will survive.
The issue for our profession is how such changes will evolve. No doubt some centres will fall by the wayside, while others will grow and thrive. Those that do survive may not necessarily remain in the form we are familiar with. Financial centres such as the Isle of Man and the Channel Islands are already on the road to diversifying their economies so the reliance on the financial sector is not so heavy.
The question is will we as international advisers be able to read the tea leaves to work out which centres will survive and what services will remain of benefit to our clients?
David Howell is chief executive of Guardian Wealth Management
