Solid as a rock

Does tax planning still work in a world of tax information exchange agreements (TIEAs), ever stricter compliance and KYC regimes, a focus on taxation on the wealthy, and the targeting of tax havens?

A new private client and wealth preservation environment has developed in recent years as a result of a succession of paradigm-challenging events, ?namely the collapse of the world’s financial markets in the wake of Lehman Brothers, loan defaults, rising unemployment and an explosion of sovereign debt issues, leading to bailout after bailout of ailing European economies. All these factors have combined to deliver a death blow to the last remaining shreds of confidence in, and a tightening of, international money markets, a series of events which has brought the management of private wealth into sharp focus.

Fishing trip

However, it is important to maintain perspective and understand the reality of the wealth preservation business, particularly in the context of a jurisdiction like Gibraltar. Today, tax planning remains your route map for wealth preservation; few trusts are ever actually subjected to attack by the authorities and access to information by the authorities is hardly on the basis of an ‘open book’ approach. In order to access the information they covet, they need to be able to meet a series of criteria designed to protect individuals from prying eyes on a ‘fishing expedition’. So confidentiality in bona fide situations can still be maintained and protected from attack.

As we progress, some private wealth management realities remain unchallenged, while others adapt to the new business environment. People today follow their money, not the other way around. Technologies and cheap air travel make the choice of country of residence an easier task than ever before, and ensuring tax residency in an ‘onshore specialist finance centre’ also limits tax information exchange risk. Therefore, despite entering into a large number of TIEAs with countries around the world, Gibraltar continues to offer modern and acceptable tax planning solutions in what is otherwise a very difficult economic market. Why?

Gibraltar’s membership of the EU has been quite the mixed bag for the jurisdiction. It has brought both opportunities and challenges to our financial services offering and the local industry has managed to deliver on the promise of the opportunities of said membership while effectively dealing with every challenge laid down before it over the years. However, the crux of the matter is that our membership of the EU is, beyond question, one of the fundamental advantages the jurisdiction is able to offer.

In addition to that, the availability of favourable tax regimes for high- net-worth individuals, the availability of trust solutions found in common-law-based legal systems such as ours, allied to the lack of capital gains, wealth or inheritance tax, make Gibraltar an ideal place to consider in a wealth management, tax planning context. In addition, a consideration of all the advantages bestowed by our membership of the EU, in particular the ability to passport financial services throughout Europe, makes for a compelling case.

Role playing

As a jurisdiction, Gibraltar has been enjoying a steady demand for its solutions for a variety of factors. Tax measures taken in the UK in recent times, such as the imposition of the 50 per cent income tax and other prohibitive measures, have driven many of the City’s highest flyers out of London and on to friendlier places that were offering simple and far more economical tax treatment.

Many of these exiles sought ‘refuge’ in Switzerland, a location which for a long time represented the last bastion in secrecy and confidentiality and, in addition, offered simpler and more advantageous tax treatment for such individuals. However, in 2010 Zurich abolished its lump sum tax regime which saw 46 per cent of its resident rich foreigners move away to pastures new. La Gauche, Switzerland’s left wing party, recently started a petition to seek the abolition of favourable tax deals for rich foreigners throughout the country, a petition which enjoys widespread political support. Voting is due to be conducted in a number of other cantons over the next few months.

It seems that a sea change may be ?on the cards, which may well see significant wealth seeking a new home within Europe. Gibraltar offers much which can draw the interest of this newly mobile wealth by offering a wide range of tempting solutions for high-net-worth individuals: a common law jurisdiction offering the trust and planning solutions such individuals require, onshore and within the EU, yet remaining distinctly attractive from a tax perspective.

This is a private client offering ?which is now bolstered by a robust ?and eminently reasonable corporate taxation regime, allied to continued investment of time and money by the industry in the development of all our financial services products, particularly ?in the funds context. Gibraltar will continue to play its recently rediscovered role of European specialist onshore domicile of choice for private individuals, asset managers and funds for some time to come. n

Peter Isola is senior partner at Gibraltar-based Isolas