Information exchange in Guernsey: the road to FATCA and beyond

Laila Arstall
Carey Olsen, Guernsey


Laila Arstall is an Advocate and Senior Associate at Carey Olsen in Guernsey


Guernsey has been at the forefront in participating in international initiatives to promote tax transparency and fight tax evasion, among which is its recent efforts to develop a framework for information exchange pursuant to FATCA. This article sheds light on these developments and recommends steps to be taken by Guernsey based financial institutions to best prepare themselves to meet the challenges ahead.

I. Introduction

The year 2013 has seen the most significant overhaul in the field of international tax compliance and disclosure in recent times. Guernsey and the other two Crown Dependencies of Jersey and the Isle of Man have continued to play their role in supporting a number of international initiatives as part of a general response aimed at promoting the highest international standards of tax transparency. Guernsey's commitment to fighting tax evasion has its roots in the recognition of the moral imperative to play its part in the fight and rational economic self-interest. This is because it has long been recognised by the States of Guernsey and Guernsey's finance industry that Guernsey's international reputation is enhanced by tax transparency and its success as a jurisdiction offering a full range of financial services is based on being internationally recognised as well regulated and tax transparent.

Global standards in the field of information exchange are continually being improved and 2013 has seen a concerted move to adopt automatic information exchange in place of the current model of information exchange on request, as the new global standard. It is commonly acknowledged that the current trend towards automatic exchange as the new standard was given significant impetus by the provisions of the Foreign Account Tax Compliance Act (“FATCA”) brought in to US law by the US Hiring Incentives to Restore Employment Act (“Hire Act”) on March 18, 2010. Given the global reach of FATCA, together with the US regime of basing tax on citizenship, financial institutions around the world, including in Guernsey, were faced with the invidious choice of potentially breaching domestic laws or the threat of suffering US withholding taxes to the detriment of their client base.

Compliance with FATCA in its original form as implemented through US regulations1 in order to comply with American law would engage domestic laws of duties of confidentiality and data protection for jurisdictions, like Guernsey, whose laws acknowledge and safeguard the legitimate interests of the individual to maintain privacy over their personal affairs. In spite of these domestic concerns, Guernsey, along with a number of other jurisdictions, is working hard with investors and stakeholders in the international finance industry to develop a legal framework to accommodate information exchange pursuant to FATCA, as well as further anticipated changes in international disclosure practice.

This article provides an overview of these developments in the context of Guernsey's financial institutions and their clients. Finally, it will consider recommended steps to be taken by Guernsey based financial institutions in order to be best prepared to meet the challenges ahead, including touching on further developments that lie ahead.

II. The road to FATCA

When the UK announced that it would be entering into an intergovernmental agreement (“IGA”) with the US to implement FATCA in the UK in September 2012, the Crown Dependencies of Guernsey, Jersey and the Isle of Man quickly followed suit by announcing2 their intention to negotiate an IGA along similar lines with the US to enable Financial Institutions based in the Isle of Man, Jersey and Guernsey to comply with FATCA in a way which does not engage domestic laws of duty of confidentiality and data protection. This was seen as crucial for the future of the finance industry in the Crown Dependencies.

However, in order to enter into an IGA with the US, Guernsey would require prior authorisation from the Crown because international agreements are normally the preserve of sovereign states. As with the other Crown Dependencies, Guernsey is not a sovereign state, and would need to secure the approval of the UK Government to conclude an IGA with the US. The need to secure the consent of the UK Government therefore provided the UK with leverage to insist that Guernsey, along with the other Crown Dependencies, first agrees to adopt a tax package of three initiatives, including an agreement on the reporting of tax information along FATCA principles through a separate IGA with the UK, and an agreement to support a disclosure facility for UK tax defaulters with investments in Guernsey. The understanding was that once the Guernsey Disclosure Facility (“GDF”) and the UK-Guernsey IGA were signed, Guernsey would then be able to conclude the US-Guernsey IGA.

III. Milestones on the road to FATCA

The first key milestone in 2013 was the signing of the GDF on March 11, 2013.

What is the purpose of the GDF? This is available to UK taxpayers with investments in Guernsey, who have irregularities in their UK tax affairs, so that they can come forward and clear all their outstanding UK tax liabilities.

The GDF, along with the disclosure facilities signed up by Jersey and the Isle of Man in like terms, were headlined in the UK's Budget on March 20, 2013, as part of the efforts to plug the UK tax gap of GBP 32 billion. This is a huge figure but largely irrelevant to Guernsey's economy as most of it arises from lost VAT receipts. Guernsey lies outside the VAT territory of the European Community and does not raise VAT. Unlike Jersey, Guernsey does not raise a sales or goods tax or a tax on turnover.

In the 2013 budget, the UK Treasury anticipated the yield from the three Crown Dependencies' Facilities to total GBP 1 billion. But locally, this figure is regarded as unrealistic3 because of Guernsey's long-standing commitment to transparency, including its extensive network of tax information exchange agreements and the fact that Guernsey already exchanges information automatically under the EU Savings Directive as the only method of compliance with the Directive in Guernsey. Unlike Jersey, Guernsey repealed the retention tax option, which had been available to certain jurisdictions implementing the measures set out in the Directive, with effect from July 1, 2011.

So why is the GDF an important part of HMRC's arsenal for tax collection? From a legal perspective where a UK taxpayer voluntarily comes forward and discloses unreported assets and pays outstanding tax liabilities, issues of confidentiality, data protection and enforcement of foreign taxes under domestic Guernsey law do not come into play.

From an economic perspective, the collection of unpaid taxes through disclosure facilities may yield lower returns for HMRC in terms of reduced penalties, but this is a small price to pay by way of offering an incentive to the taxpayer to come forward, compared with the costs that would otherwise be incurred by HMRC in launching an investigation into the affairs of individual taxpayers.

Other weapons in HMRC's arsenal rely heavily on information gathering mechanisms, for which 2,500 extra staff have been recruited to support investigations, with GBP 6 million committed over two years to establish a new offshore evasion strategy. HMRC has also acquired a new software called Connect, which is currently being used to trawl through data gathered under other disclosure facilities since 2007. So the GDF, as with other disclosure facilities, sits alongside the framework for tax investigation, which, in turn, depends upon information gathered from as many sources as possible.

This takes us to the next two milestones - the two new IGAs, one with the UK and the other with the US.

IV. Update and overview of UK-Guernsey IGA

On October 22, 2013, Guernsey signed the UK-Guernsey IGA4. Jersey signed a similar agreement on the same day and the Isle of Man signed their agreement on October 10, 2013. The signings follow joint negotiations by the Crown Dependencies which were on-going for approximately a year. The Crown Dependencies' intergovernmental agreements are broadly the same, except for certain island-specific differences.

The UK-Guernsey IGA builds on automatic tax information exchange already undertaken between Guernsey and the UK pursuant to the EU Savings Directive, as implemented in Guernsey through bilateral agreements since 2005. The data to be reported to the States of Guernsey Income Tax (“ITO”) under the UK-Guernsey IGA is in relation to a Specified Person who is identified pursuant to due diligence procedures (including applicable thresholds) set out in the UK-Guernsey IGA as resident in the UK for UK tax purposes in respect of that person's interest in a Financial Account maintained by a Reporting Guernsey Financial Institution.

Where a Financial Account is held by a passive entity with one or more Controlling Persons who is identified as a Specified Person resident in the UK for UK tax purposes, then the reporting is in relation to those Specified Person(s).

Exchange of information is intended to be reciprocal, i.e. UK-based Financial Institutions will report the same information in relation to Financial Accounts held in the UK for Guernsey-resident Specified Persons. Information will be exchanged between the UK's HMRC and the ITO under the Tax Information Exchange Agreement between the UK and Guernsey, which is based on the OECD Model and was signed in 2009 (the “UK-Guernsey TIEA”). Up until October 2013, the UK-Guernsey TIEA permitted only information exchange on request. The amended UK-Guernsey TIEA will now also facilitate automatic exchange of information.

V. Update and overview of US-Guernsey IGA

The UK-Guernsey IGA is modelled on draft versions of a similar agreement, the finalised version of which was signed on December 13, 2013 with the US5 (“US-Guernsey IGA”) relating to compliance with FATCA. Unlike the UK-Guernsey IGA, the US-Guernsey IGA extends the definition of Specified Person to include citizens, and not just residents, of the US.

As with the UK-Guernsey IGA, information to be reported under the US-Guernsey IGA will be exchanged with the US tax authorities, the Internal Revenue Service (“IRS”), under the US-Guernsey TIEA signed in 2002. Like the UK-Guernsey TIEA, the US-Guernsey TIEA has been amended to permit automatic exchange of information as well as exchange on request.

VI. Draft guidance

On January 31, 2014 the three Crown Dependencies jointly issued draft Guidance Notes on the implementation of the intergovernmental agreements (“IGAs”) signed by each island with the UK and with the US. The draft Guidance Notes, as currently published, are substantially the same for each island, subject to certain island-specific differences. The current draft is regarded as a work in progress and the views of local industry in each island are being sought.

The starting point for the draughtsmen of the Guidance Notes was the draft Guidance published by HMRC on August 14, 2013 on the implementation in the UK of the US-UK IGA signed in 2012. The draft Crown Dependencies' Guidance Notes includes adaptations and interpretational information appropriate to the islands' finance industries.

What is the purpose of the IGAs? The IGAs establish a framework for the cross-border reporting of information from one tax authority to another. In this case, information filed initially with Guernsey's tax authorities, the ITO, will be sent on by the ITO to HMRC in the UK and to the IRS in the US. This is consistent with all IGAs based on the Model 1 reciprocal template developed by the US as an alternative method to comply with FATCA as implemented through US regulations. Since these international obligations will be backed by domestic law, compliance will be done in a manner that does not breach local laws on confidentiality and data protection. The information is then available for use by the recipient tax authority to cross-check that UK and US tax payers have accurately and completely reported income and capital upon which they are taxable. In this way, HMRC and the IRS see these IGAs as targeting non-compliance by their own tax payers through the use of overseas structures.

VII. Legal architecture for information exchange

So, what is the legal architecture for these three initiatives, starting first with the GDF?

A. Guernsey Disclosure Facility

The GDF is contained in a Memorandum of Understanding (MoU) between Guernsey and the UK. It is has a preamble followed by six clauses setting out the terms of the MoU and two schedules. The first schedule sets out a number of defined terms. The facility itself is set out in the second schedule and comprises 11 paragraphs.

Under the GDF, HMRC and Guernsey are to provide written guidance. This has been published in the form of a set of frequently asked questions, which can be accessed through HMRC's Offshore Disclosure Facilities Home Page.6

Now from time to time these FAQs are updated. The most recent update was prompted due to the need for clarification on how the GDF applies to interests in listed and collective investment vehicles.7

B. How it works - GDF

Under the MoU, HMRC's obligation is to make available a disclosure facility for UK tax payers with irregularities in their UK tax affairs from April 6, 2013 to September 30, 2016. Guernsey's obligation is to require financial intermediaries (which is a defined as including locally licensed financial service providers) to contact their existing clients who are known to be relevant persons (another defined term) to advise them about the GDF before the end of 2013 and again in the last six months before the facility expires on September 30, 2016. Guernsey financial intermediaries must also ensure that existing anti-money laundering obligations continue to be observed.

So precisely who should Guernsey financial intermediaries contact under the GDF? The GDF states that financial intermediaries should be contacting relevant persons who have a beneficial interest in relevant property. These are defined terms, and we shall look briefly at each one in turn.

C. Scope of GDF
1. Relevant person

The definition of a relevant person depends upon whether we are dealing with an individual or a legal person such as a company. In the case of an individual, a relevant person is an individual who between April 6, 1999 (referred to as the “cut off day”) and December 31, 2013:

(i) has had a beneficial interest in relevant property; and

(ii) has been resident in the UK for UK tax purposes, for any part of that period.


The definition of a relevant person in the case of a company is very similar8 but the cut-off day is April 1, 1999.

The relevant person must have a beneficial interest in relevant property.

The definition of relevant property is wide and it includes bank accounts, companies, and trusts, that are settled, incorporated, administered or managed in Guernsey. Interests in listed and collective investment schemes are expressly excluded.

The relevant person must have a beneficial interest in relevant property. This will depend upon the type of relevant property concerned. For example, in the case of a trust, the MoU says that the settlor and beneficiaries would have a beneficial interest in relevant property for the purposes of the GDF. Now, very often a settlor will be excluded from benefitting under a trust. So does that make any difference? No, because the purpose of the GDF is to enable UK tax payers to clear their outstanding UK tax liabilities under the GDF - not whether they have a taxable interest under that trust. For example, there could be outstanding UK inheritance tax due when the settlor established the trust. The settlor can regularise his outstanding UK tax liabilities, even though he is excluded from benefitting under the trust.

Whatever the nature of the property there is no minimum amount needed to be invested in relevant property in order to qualify for the GDF.9

2. Eligibility rules under the GDF

It is currently understood that HMRC is considering extending the scope of the disclosure facilities of Guernsey, Jersey and the Isle of Man to enable residents in the Crown Dependencies to clear UK tax liabilities.

There are rules governing eligibility to benefit under the favourable terms of the GDF even if the client is a relevant person with a beneficial interest in relevant property. Those rules of eligibility turn on whether the client is, or has been, subject to an investigation by HMRC. That is a matter for the client to determine rather than the Guernsey financial intermediary.

Therefore, if a Guernsey licensed financial intermediary has a client with undeclared UK profits and gains on assets situated outside Guernsey and if that client would like to clear these irregularities under the GDF, provided he or she has acquired a Guernsey investment (for e.g. by setting up a trust in Guernsey before the end of 2013, and there is no minimum value required), and satisfies all the requirements of the GDF, he or she is eligible to make a disclosure under the GDF and clear unpaid UK taxes on all assets10 (overseas and in Guernsey). The onus to inform its client about the existence of the GDF is upon the Guernsey financial intermediary but it is up to the client to decide whether or not to participate in the facility.

3. What obliges a Guernsey financial intermediary to comply with the GDF?

Irrespective of any action the Director of Income Tax may be able to take for failure to comply11, a Guernsey financial intermediary would risk reputational damage and the possibility of claims from a disgruntled client for failure to do so. How would such damage or potential claims arise? The key lies not in the text of the GDF, but rather in the UK-Guernsey IGA and the filing of tax information reports with HMRC.

Under Article 3.4 of the UK-Guernsey IGA, the first report will need to be exchanged no later than September 30, 2016 and will cover the year ending 2014. The GDF is due to expire on September 30, 2016 and this is not a coincidence. If information reported under the UK IGA reveals unpaid UK tax which could have been settled under the GDF, the HMRC is likely to ask the tax payer whether he had been notified of the existence of the GDF by his Guernsey financial intermediary. If he had not been notified of the GDF, he may want to pursue a claim against his financial intermediary for failure to notify him of the GDF. If, however, he was notified but chose not to opt for disclosure under the GDF. this could be reflected in the penalty that HMRC would apply. It is therefore crucial to make sure that Guernsey financial intermediaries have discharged their obligations to notify their existing clients of the GDF at the appointed times and further, to also keep a record of the notifications.

VIII. Architecture of the UK-Guernsey IGA

The IGA runs into 49 pages and comprises a preamble, 10 articles and 4 annexures.

Article 2 sets out the information which a Reporting Financial Institution would need to file with their own tax office. For Guernsey-based financial institutions, this is the ITO. The ITO would then transfer that information to HMRC under new paragraph 5A of the UK-Guernsey TIEA. The information under Article 2 includes account balances and gross receipts of the Reportable Account.

This is the standard level of reporting required for the UK-based accountholders who are taxed in the UK on an arising basis on their worldwide income and gains. However, for UK resident non-doms who are taxed in the UK on a remittance basis there is an alternative reporting regime set out in Annex IV.

Annex IV sets out the Alternative Reporting Regime in terms of who is eligible, what certification procedures are required and the alternative information that is to be reported in place of the standard level of information required under Article 2, together with the timing and manner of the exchange of that information.

The obligations under the UK IGA need to be underpinned by domestic laws and supplemented by guidance notes. The domestic law will take the form of new regulations and the guidance notes are in the process of being developed with input from the Crown Dependencies and are intended to cover both the UK and US IGAs where possible. Both the regulations and the guidance notes have yet to be published in finalised form.

IX. US-Guernsey IGA

In 2010, the Hire Act added a new chapter 4 (“FATCA”) to the Internal Revenue Code of the US. In essence, FATCA requires financial institutions outside the US, known as foreign financial institutions (“FFIs”), to enter into an agreement with the IRS (the “FFI Agreement”) under which the FFI takes on a contractual obligation to pass information about their US customers to the IRS. FATCA imposes a withholding tax on the US source income of any FFI that fails to comply.

On January 17, 2013, the US Treasury Department and the IRS released the long-awaited final US Regulations to implement FATCA (“US Regulations”). These run into 544 pages.

From time to time, the IRS publishes notices dealing with practical issues ranging from timelines to interpretation. An example of an IRS notice is the one issued on July 12, 2013 (“Notice 2013-43”) under which the implementation of the FATCA Regulations was delayed by further six months, which means FATCA reporting is currently anticipated to commence from July 1, 201412.

Because the contractual obligations under an FFI Agreement would not necessarily have the backing of domestic law, an FFI that had entered into an FFI Agreement could be placed in the invidious position of having to choose between breaching local data protection of duties and confidentiality owed to their clients, or the terms of the FFI Agreement with the IRS. For this reason, governments around the world lobbied the US, which finally agreed to an alternative basis for compliance with FATCA. The US would be prepared to enter into a bi-lateral intergovernmental agreement (“IGA”) with a foreign jurisdiction, which would then become a FATCA Partner. Provided the FATCA Partner signs up an IGA based on a Model IGA template which is implemented through local domestic law, FFIs based in that FATCA Partner jurisdiction need not enter into an FFI Agreement direct with the IRS.

The US published two types of Model IGA - Model 1 is where information is reported to the local tax authorities, which will then transfer that information to the IRS under an existing convention or TIEA between the FATCA Partner jurisdiction and the US. Model 2 IGA is where information is reported directly to the IRS.

The US-Guernsey IGA is based on the Model 1 template and is intended to be reciprocal.13 It is based on very similar terms as those signed up by the UK with the US in September 2012.

There are some key differences between the US-Guernsey IGA and the UK-Guernsey IGA. Unlike the UK-Guernsey IGA, the US-Guernsey IGA extends reporting in respect of Specified Persons who are resident in, or citizens of, the US. In addition, the US-Guernsey IGA has only one level of reporting and does not contain an alternative reporting regime as is available under the UK-Guernsey IGA for UK resident, non-domiciled, remittance-based tax payers.

Unlike the UK-Guernsey IGA, all reporting Guernsey financial institutions and any entity that is a register deemed compliant entity as defined under the US-Guernsey IGA, must register (or be registered) on the IRS FATCA portal under the US Treasury Regulations and obtain a Global Intermediary Identification Number (“GIIN”) from the IRS. There is no requirement to register with the ITO under either the UK-Guernsey IGA or the US-Guernsey IGA. There is no requirement to register with HMRC under the UK-Guernsey IGA.

Where a GIIN has been provided at the time of registration with the IRS for FATCA purposes, a Guernsey financial institution may need to include its GIIN when filing information pursuant to the UK-Guernsey IGA. This may be in anticipation of the GIIN becoming an internationally recognised identifier for financial service providers. If the reporting financial institution does not have a GIIN, then it should provide its local tax ID number in reports to be filed with ITO for onward transmission to HMRC.

As with the UK-Guernsey IGA, the US-Guernsey IGA will need to be underpinned by domestic regulations and be implemented in accordance with local guidance.

X. The US and UK TIEAs with Guernsey - framework of the TIEAs

As mentioned above, information filed with the ITO will be exchanged with HMRC and with the IRS under the existing TIEA framework with the UK and the US, respectively. The TIEA framework is based on the model produced by the OECD following the Global Forum14 discussions at the end of the 1990's. The first TIEA signed up by Guernsey was with the US in 2002. A TIEA with the UK was signed in 2009 along similar lines. The TIEA framework currently facilitates the exchange of information in tax matters on request, where the request is “formulated with the greatest detail possible”.15

In order to enable the exchange of information under the IGAs, both TIEAs have been amended to include exchange on an automatic basis. This is set out in a new Article 5(A) introduced into both the US and UK TIEAs.

The UK-Guernsey IGA also refers to a new Article 5(B) in its preamble. This is a reference to the provision in the OECD Model which enables spontaneous exchange of information from one contracting party that is foreseeably relevant to another contracting party and that has not been previously requested. It relies on the active participation and collaboration of local tax officials, usually following a tax investigation.16 The significance of this new Article is that it enables either the UK or the ITO to voluntarily and unilaterally transmit information which it thinks is relevant for the purposes of the TIEA. This is a significant increase in the powers conferred upon the Director of Income Tax in Guernsey, although it remains to be seen whether and in what circumstances this power would be exercised. The US-Guernsey TIEA has also been amended to include Article 5(B) in order to permit spontaneous exchange of information.

How will these powers be reflected in Guernsey's domestic law? Under section 75 (B) and (C) of the Income Tax (Guernsey) Law, 1975 as amended, the Director of Income Tax has power to issue a formal notice pursuant to an “approved international agreement” to require the production of documentation which is in the possession or power of a person. An “approved international agreement” is any agreement which is between the States of Guernsey and a government of another territory for the purposes of obtaining and exchanging information in relation to tax and which is specified as such by an ordinance.17 So all that is required under Guernsey law is an ordinance specifying the new international agreement for these international obligations of tax information reporting to be underpinned by domestic law in Guernsey. Therefore, it is relatively easy for international reporting obligations, which are duly approved by governmental process, to become enforceable under Guernsey's domestic law.

XI. Information and associated deadlines for reporting under the IGAs

Table 1 and 2 sets out the type of data that has to be filed for standard filings and current anticipated deadlines for exchange of that data between the competent tax authorities under the US and UK IGAs. There is a “soft launch” approach for the first two years and then 2016 is the first full year of reporting due in 2017 for both US and UK filings. This means that domestic regulations bringing in the legislative framework to collect the required data needs to be in place before the start of the reporting period in 2014, even if those reports are subsequently filed in 2015 and 2016 The deadlines mentioned are dates by which ITO should exchange information with HMRC and the IRS. In practice, ITOs are likely to set deadlines that are three months earlier for local FIs to file their reports with the ITO in the prescribed format in order to give the ITO sufficient time to check that the prescribed format (or Schema) has been properly completed (although the ITO will not verify that information) before sending it on to the foreign tax authority. The timetable is therefore tight.


Information and Associated Deadlines for Reporting under the US-Guernsey IGA
Reporting Year In respect of Information to be reported Reporting date ITO to IRS
2014 Each Specified US Person either holding a Reportable Account


as a Controlling Person of an Entity Account
US TIN (where applicable or DoB for Pre-existing Accounts)

Account number or functional equivalent
Name and identifying number of Reporting Financial Institution
Account balance or value
September 30, 2015
As 2014,
plus the following:
Custodial Accounts The total gross amount of interest;
The total gross amount of dividends;
The total gross amount of other income paid or credited to the account
September 30, 2016
Depository Accounts The total amount of gross interest paid or credited to the account in the calendar year or other reporting period
Other Accounts The total gross amount paid or credited to the account including the aggregate amount of any redemption payments made to the account holder during the calendar year or other appropriate reporting period
As 2015,
plus the following:
Custodial Accounts The total gross proceeds from the sale or redemption of property paid or credited to the account September 30, 2017
  All of the above September 30 following the end of the reported calendar year


Information and Associated Deadlines for Reporting under the UK-Guernsey IGA
Reporting Year In respect of Information to be reported Reporting date ITO to HMRC
2014 Each Specified UK Person either holding a Reportable Account


as a Controlling Person of an Entity Account
Date of Birth (where available NI or Social Security Number

Account number or functional equivalent
Name of Reporting Financial Institution
Where provided when registering with IRS for FATCA, GIIN.
Where no GIIN available local tax ID number
Account balance or value
September 30, 2016
As 2014,
plus the following:
Custodial Accounts The total gross amount of interest;
The total gross amount of dividends;
The total gross amount of other income paid or credited to the account
September 30, 2016
Depository Accounts The total amount of gross interest paid or credited to the account in the calendar year or other reporting period
Other Accounts The total gross amount paid or credited to the account including the aggregate amount of any redemption payments made to the account holder during the calendar year or other appropriate reporting period
As 2015,
plus the following:
Custodial Accounts The total gross proceeds from the sale or redemption of property paid or credited to the account September 30, 2017
  All of the above September 30 following the end of the reported calendar year
XII. UK-IGA and the alternative reporting regime

The UK-Guernsey IGA provides for an Alternative Reporting Regime for UK Resident, Non-Domiciled individuals. HMRC has reluctantly agreed to allow an alternative reporting regime for Resident Non-Doms in recognition of the different basis on which they are taxed in the UK. Individuals who are tax resident and domiciled in the UK are generally taxable on their worldwide income and gains on an arising basis. However, those UK residents who are not domiciled in the UK (“Resident non-doms”) can, where available, by election and payment of the appropriate remittance basis charge, claim to be taxed in the UK on a remittance basis for the relevant period. As a result, their UK tax liability is limited to any UK source income and gains, and any worldwide income and gains that are remitted to the UK during the relevant period.

Under the UK IGA, in general, such individuals who have completed the election and annual self-certification process, are subject to Alternative Reporting where flows of payments and property are transferred to and from the UK, instead of having the account balance and payments credited to their Reportable Account reported under the standard regime.

For the Alternative Reporting Regime to be used, two levels of election are required and one certificate:

• the reporting Guernsey financial institution must have made an election to the ITO to apply the Alternative Reporting Regime, for eligible account holders (prior to the commencement of the Relevant Reporting Period);18 and

• the Specified UK Person must elect to apply the Alternative Reporting Regime to their account.19 with that election being lodged with the Guernsey Reporting FI and applying to all his UK Reportable Accounts with that Guernsey Reporting FI.


In addition, in respect of each Relevant Reporting Period the Specified UK Person must provide a certificate to the Reporting Guernsey Financial Institution by the due date20 confirming the following:

• that the Specified UK Person's UK tax return for the Relevant Tax Year:

• includes a claim to be taxed in the UK under the remittance basis; and

contains a statement that he is not domiciled anywhere within the UK; and

• includes a claim to be taxed in the UK under the remittance basis; and

• to the best of his knowledge the domicile status and claim to be taxed on the remittance basis are not being formally disputed by HMRC.21


There is an obligation on the Reporting Guernsey Financial Institution to retain in their records both the election made by the Specified UK Person and the Certification for each Relevant Reporting Period for a period of six years following the end of the Relevant Tax Period.22

The time periods are confusing because of the reference to Relevant Reporting Period , which means the calendar year to which all the information would relate in the absence of the Alternative Reporting Regime, and the Relevant Tax Period, which means the period from June 30, 2014 to April 5, 2015 for the Relevant Reporting Period 2014, and for all other years that means the UK tax year of April 6 to April 5 following.23

XIII. Information to be reported under Alternative Reporting Regime

This is set out in Annex IV D. The information is summarised below.

Gross Payments and Movements Assets received into the Reportable Account in Guernsey from the UK and from an unknown originating source.

Gross Payments made from the Reportable Account in Guernsey to the UK or to an unknown ultimate destination. The words “unknown ultimate destination” were inserted so that correspondent bank transfers through the UK could be ignored. Therefore, if a Sterling payment is made from the Reportable Account in Guernsey to an account in France, but goes via the UK because it is a Sterling payment, the Guernsey Reporting FI can ignore the intermediate transfer into the UK received as a correspondent bank.

Where there are any Gross Payments and (if appropriate) Movements of Assets that are reportable under the Alternative Reporting Regime during the Relevant Tax Year, the following information is required to be filed instead of the standard data:

• total monies and property (both tangible and intangible) of the Gross Payments and (if appropriate) Movements of Assets;

• name, address, date of birth, National Insurance number of each Specified UK Person;

• account number;

• name of Reporting Financial Institution; and

• where provided when registering with the IRS for FATCA purposes, the GIIN.


But Reporting Guernsey FIs would need to consider carefully whether they wish to offer the Alternative Reporting Regime due to the fact that keeping track of annual elections, fulfilling the obligation to retain appropriate records for a period of six years following the end of each Relevant Tax Year24 and the need to maintain a dual reporting stream covering Standard and Alternative Reporting data for a Specified UK Person (because he may end up opting in and out depending on whether he has claimed the remittance basis for each tax year), could prove time consuming and onerous.

XIV. Impact of GDF and the two IGAs on Guernsey based FIs

The immediate impact for Guernsey based financial intermediaries is the requirement to contact current clients who are relevant persons so that they are aware of the GDF. The notification must be made before the end of 2013 deadline (now passed) and in the six months before the expiry of the GDF on September 30, 2016. The first task will be to identify relevant persons from amongst the current client base.

Developing a communications strategy to ensure that it is consistent, accurate and informative but does not amount to providing tax advice to the current client will clearly take some careful thought. There is no prescribed format or method for notifying clients about the GDF, so the onus is on the financial intermediary to get it right.

With regards to the IGAs, many financial institutions have already started preparatory work to answer the following questions:

• Am I a Financial Institution?

• Do I hold Financial Accounts?

• Are there indicators that any of the account holders are Specified Persons?

• After applying the relevant due diligence procedures, do I have any Reportable Accounts?

• If so, what do I report and when?


Financial Institutions will also need to consider internal procedures and staff training so that non-client facing staff as well as the relationship manager are adequately prepared to deal with enquiries from clients and their advisers. There may be obligations to file a disclosure notice to the local Financial Intelligence Service (“FIS”), for example in the context of a client wanting to use the GDF to clear unpaid UK tax liabilities. This is because tax evasion is a predicate offence for money laundering purposes. If a notice is filed, then care must be taken to observe any anti-tipping off requirements and the notice should be accompanied by a request for consent to continue or maintain the relationship with the client. The FIS should also be requested to file a copy of the disclosure with HMRC, explaining that it is made in connection with a proposed disclosure under the GDF.

In Guernsey, many financial institutions are already subject to codes of practice which govern the standard of service expected of licence holders. For trust service providers, the code requires regulated providers to treat the interests of beneficiaries as paramount, and this includes being aware of their clients' residence and domicile and considering the tax status of the trust (where appropriate). Trust service providers are required to provide information to beneficiaries to enable them to file their own tax returns. So it may be prudent to ensure that the provider can easily demonstrate that it has met this duty for example by providing relevant information at appropriate intervals to the beneficiaries so that they can include it in their own tax returns as and when appropriate.

Dealing with requests for information: It stands to reason that a relevant person who may be eligible (or his adviser) and wishes to use the GDF will require information from the financial intermediary in the form of statements, records, correspondence, possibly going back as far as April 1999. In addition, information automatically filed in compliance with the IGAs is likely to give rise to a new wave of TIEA requests received from the ITO but initiated by foreign tax authorities.

There may also be time pressures within which this information is required because a relevant person may be anxious to lodge an application under the GDF as a matter of urgency if he anticipates that HMRC may commence an investigation soon. This is because an open investigation would preclude him from being eligible to participate in the GDF.

It is not possible to pre-register an application with HMRC in order to obtain assurance against a civil enquiry or criminal tax investigation.25

This is quite apart from the time pressure to complete client due diligence procedures to be ready to meet obligations under the two IGAs and deadlines that are imposed when dealing with a formal notice to comply with a TIEA request.

There is no doubt that dealing with new reporting obligations will result in additional costs incurred in providing information, documentation and corresponding with clients and their advisers. Therefore this may be an opportune time to review terms of business, letters of engagement and service provider agreements currently in place to ensure that financial service providers are covered for these additional costs and services. Service providers should also ensure that they have their clients' authority to deal with advisers and duly appointed representatives before disclosing confidential information about their clients' affairs. However, a balance needs to be maintained when seeking to pass these costs on to the client because they are likely to feel that these costs are part and parcel of doing business in Guernsey.

XV. Future developments

The GDF and the two IGAs are by no means the end of the story in terms of tax compliance and reporting for Guernsey-based financial service providers.

On December 11, 2003 Guernsey's parliament approved the proposal that the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters (“OECD Convention”) is extended to Guernsey. The purpose behind the OECD's Convention is to encourage automatic exchange of information in tax matters, simultaneous tax examinations and assistance in the collection of tax debts. The OECD Convention provides a single legal basis for multilateral country co-operation and specifies uniform procedures for various forms of mutual assistance between the competent authorities of parties to the OECD Convention. The OECD Convention allows for certain reservations, for example, in tax collection, which could be a key issue for us in Guernsey. This builds on the commitment given in a letter dated June 7, 2013 by the Chief Minister to UK Prime Minister David Cameron that Guernsey would sign up to the OECD Convention, subject to due process and agreement of appropriate reservations.

On September 9, 2013, the G20 Leaders declared their commitment to automatic exchange of information as the new global standard. The OECD has been tasked to develop a new single global standard, referred to as the Model Competent Authority Agreement (“OECD Model Agreement”), to be supported by a common reporting standard (“Common Reporting Standard”). This project is ongoing irrespective of what is going on with US FATCA and any EU initiative. The OECD describe the initiative as “very big and significant” as part of their initiative known as “tax inspectors without borders”.26 Responding to a mandate from G20 leaders to act against tax avoidance and evasion, the OECD has unveiled on February 13, 2014 a new single global standard for the automatic exchange of information between tax authorities worldwide.27 The OECD will formally present the standard for the endorsement of G20 finance ministers during a 22-23 February meeting in Sydney, Australia. The G20 invited the OECD to develop a global standard on automatic exchange of information in 2013, and remains the driving force behind the move toward greater tax transparency worldwideThe OECD Model Agreement and Common Reporting Standard are likely to be implemented through the platform of the OECD Convention and, therefore, the endorsement of these initiatives is seen as crucial to further illustrate Guernsey's commitment to combatting tax evasion and encouraging the principle of automatic exchange of information in tax matters as the new global standard.

From Guernsey's perspective, this would be a significant step towards creating a global level playing field in tax information exchange. Indeed, the preamble to the UK-Guernsey IGA states that the parties to the UK-Guernsey IGA “will look to align [that] agreement to [the] new global standard in due course”.

XVI. Conclusion

In conclusion, will 2013 go down in history as an annus horribilus for Guernsey-based Financial Institutions causing them to review their business models?

Certainly the compliance costs and the time and effort required to deal with information requests could result in a loss of business to centres that offer less transparency and lower costs to the client.28 Alternatively, capital will be repatriated onshore, which surely is what the UK and US Treasury Departments are ultimately seeking?

However, with the growing consensus for multilateral exchange of information on an international basis gathering significant momentum this year, Guernsey may finally see a move to a more level playing field amongst its competitors.29 which is something that Guernsey has called for ever since this journey started in the in the late 1990s.

2012 also saw the shocking debacle in Cyprus leading to the compulsory and sudden confiscation of cash held in client accounts. This represents a tangible reminder to the investor of the primary importance of financial stability, which is a key aspect of Guernsey's economy.

It is widely anticipated that the main source of growth is likely to come from the emerging economies. Wealthy individuals from Brazil, Russia and China fear that domestic banks are not safe from financial problems or government intervention. They seek geographical diversity and political and financial stability, which makes Guernsey an ideal home for investment.

Laila Arstall is Senior Associate at Carey Olsen in Guernsey and she may be contacted by email at or by telephone at +44 (0)1481 741544 .


1 As published in final form on January 17, 2013

2 States of Guernsey Press Release:  

States of Jersey Press Release:  

Isle of Man Government Press Release:  

3 T&R Minister, Deputy Gavin St Pier cited in Announcement dated March 15, 2013

4 Agreement between the UK and Guernsey to Improve International Tax Compliance

5 Agreement between the Government of the States of Guernsey and the United States of Guernsey of America to Improve International Tax Compliance to Implement FATCA


7 ITO circulated an alert October 30, 2013. Essentially the answer to FAQ 5.17 was originally given as Yes, when it should have been No, as entities that are listed and collective investment vehicles, however structured, are expressly excluded from being relevant property.

8 But not identical. It is not clear whether the differences in drafting hold any significance in substance.

9 FAQ 5.3

10 FAQ 7.1 and FAQ 7.3 (close offshore account and move balance to Guernsey before December 31, 2013)

11 On June 25, 2013, Jersey enacted Taxation (Implementation) (Disclosure Facility) (Jersey) Regulations 2013 that brings into force the obligation on Jersey Financial Intermediaries to notify current clients of the existence of the Jersey Disclosure Facility, using the same deadlines as in the GDF. The Jersey Regulations also provide that the term “Financial Intermediaries” means a person who is regulated under the various Regulatory Laws in Jersey. There is no penalty for failure to comply. The 15 pages Law sets out the text of the Jersey MoU which was signed up March 13, 2013. Guernsey has not enacted a similar set of regulations for the GDF.

12 Although reports from Taiwan's Central News Agency in mid January suggest that there may be a further delay in the start date.

13 It was accepted by the Policy Council of the States of Guernsey on October29, 2013 that the US IGA is intended to be reciprocal but may not immediately be so in practice. However, Judge James E Boasberg of US District Court for the District of Columbia said in a 23-page Judgment (case 1: 13-cv-00529-JEB Document filed 01/13/14 Florida Bankers Association. Et al -v- US Department of Treasury) that “reciprocity is the key to success” in tax treaties and referred to 77 Fed.Reg.23,391 and the rules effective January 1, 2013, under which banks are required to report interest payments to non-resident aliens, but only for aliens from countries with which the US has an exchange agreement.

14 Global Forum on Transparency and Exchange of Information for Tax Purposes, established by OECD in 2009.

15 Article 5(5) UK-Guernsey TIEA

16 Manual on the implementation of exchange of information provisions of tax purposes January 23, 2006

17 Section 75C(4) ITL, 1975

18 UK-Guernsey IGA Annex IV B 1(a)

19 UK-Guernsey IGA Annex IV B 1(b)

20 29 February following the end of the relevant tax year (i.e. April 5)

21 UK-Guernsey IGA Annex IV C(1)

22 UK-Guernsey IGA Annex IV C(2)

23 UK-Guernsey IGA Annex IV G(2) and (3)

24 Under Annex IV C (2)

25 FAQ 1.15

26 FT G20 to back moves to expose tax evaders September 5, 2013: quoting Pascal Saint-Amans OECD Paris


28 Liechtenstein banks have seen 30 percent percent decline in client assets in five years to 2011: “Leaky devils” Economist April 13, 2013


29 On April 10, 2013 Luxembourg announced that it was abandoning the 35 percent retention tax option under the EUSD wef January 1, 2015, from which date it would apply automatic exchange of information to comply with the EUSD.