Guernsey is preparing a new law that will enable its financial industry to offer foundations as an alternative to trusts in a bid to attract clients from emerging markets.
The news has attracted criticism from anti-tax avoidance protestors concerned that foundations are secretive, will enable users to avoid legal accountability and will prevent investigation into money-laundering and tax evasion.
Foundations are used extensively in jurisdictions such as Panama and Liechtenstein and, more recently, Jersey.
They are legal entities created when a person provides a segregated pot of assets to be used for a specific purpose, such as succession planning for future generations.
The foundation holds the assets for the designated purpose and is administered by a council according to contractual rather than fiduciary principles.
John Christensen, Jersey's former economic adviser-turned-dissident, said: "It is worrying that Guernsey is expanding its services in this direction since potential users of Guernsey foundations, especially those originating from Latin America, China and the Middle East are very likely to be attracted to using foundations precisely because their secrecy will provide cover for criminal activity."
Guernsey argues that its preparation for a new foundations law is an attempt to attract custom from emerging markets, which are predominantly civil law jurisdictions and largely unfamiliar with the Anglo-Saxon trust structure based in common law.
In response to critics, a spokesman for the
States of Guernsey said: "Any legislation passed in Guernsey will ensure that Guernsey foundations are neither secretive nor opaque, and that foundation councillors are subject to the same robust legal framework as company directors.
"The draft law Guernsey is consulting on makes it impossible to form a Guernsey foundation without the founder being both transparently identified and subject to due diligence guidelines that are in line with the highest international standards.
"It is simply wrong to say that a Guernsey foundation can be used as a cover for criminal activity."
The precise nature of the foundation structure, initial capital requirements, extent of founder powers, consideration of fiduciary duties, taxation and market demand for foundations will be considered until the end of the consultation period on May 23.
While the local method of taxation of a Guernsey foundation has yet to be finalised, It is expected that it will be tax neutral in Guernsey.
Peter Niven, chief executive of
Guernsey Finance, the promotional agency for the island’s finance industry, said: "I’m hopeful that by early next year Guernsey practitioners will be able to offer a foundation which enables clients to preserve and enhance their wealth and assets through a highly regarded structure in a reputable jurisdiction.”
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