hawk-i newsletter - november 2012

Issue 4 | Winter 2012/2013

Thinking

beyondtomorrow

FiduciaryFamily OfficeWills & ProbateSuccession PlanningEmployee Solutions Funds AdvisoryMedia & SportsL-S&S GmbHpart of the Hawksford Group

page 2 A welcome to Hawk-i from Peter Murley

page 3 To change or not to change – there is no question

page 4 Retention of Control: balancing a settlor’s aspirations with trustee responsibilities

page 6 Guest column: The investment challenges of trusteeship – Alexandra Webster, St. James’s Place Wealth Management

page 7 United Arab Emirates and Switzerland offices – market update

page 8 Guest column: The ‘Company Pre-nup’: providing certainty and security for your business interests - Deborah Clark, Mills & Reeve

page 9 New fund regulation in Jersey - a welcome step change

page 10 A brief guide to Switzerland

In this issue

New systemFollowing the successful testing and incubation period in one of our teams, we are now ready to introduce our new client administration system, Jobstream, to the whole business. We are confi dent that this investment will allow us to become more effi cient in the way we work, enabling us to improve our response times and the service we provide. The new system will launch in November.

Thought paperThinking beyond tomorrow is Hawksford’s positioning statement, but how does it translate into the world around us? In October we launched the Hawksford thought paper – a collection of essays by leading contributors from business, society, education and culture; looking at the trends, issues and opportunities that might affect the world’s future.

This is ‘thinking beyond tomorrow’ in action – considering the factors around us now to help us plan for the future.

The launch of the thought paper took place at the House of Commons. Witness to the great decisions of the past and political home to those entrusted with planning for our future, the House of Commons was the perfect venue. Over 80 people attended the event, all of them understanding the importance of planning for tomorrow.

If you would like to receive a copy of our thought paper please email [email protected].

Since our last edition of Hawk-i the Olympics have come and gone, summer put in a very brief appearance and we are delighted to have made a number of appointments and promotions at Hawksford.Charlotte Brambilla joined us as a client director in August and Matt Haynes joined as business development director in September. In September we also appointed two of our existing staff members, Kerry Osmand (HR director) and Ian Murphy (risk, governance and compliance director) to the Hawksford board.

[email protected].

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To succeed in change management you need broad shoulders, thick skin and must be prepared to absorb change yourself. The best change managers will receive fl ack but have the tenacity to push through problems and demonstrate single mindedness, be focused, and importantly, be able to see the house fully completed rather than totally lack imagination and only see one room at a time.

Change is defi ned in many ways, just Google it. I would describe change as anything that results in properly designing, planning and coordinating the implementation of matters so as to become different, more effi cient or more competitive, delivering things that benefi t the business, its clients and its staff.

Shareholders are omitted from the above because if you get change right this becomes irrelevant as benefi ts will always accrue. Of course your shareholders will want the case for change, but the key to everything is people, always. The use of words such as transform or shift are simply different expressions of the same thing - change.

There is nothing new in change management. In fact there is very little new or unexpected in this world because most things have been done before. Everyone is looking for the next new product or the latest methodology, but the truth is that change has been around forever. The thing that changes or evolves is the culture in which we try and implement change. A change manager’s role is heavily tied to people and motivation – a bit like ‘if you build it they will come’. A great change programme can be defi ned by clear goals, objectives and outcomes – you should couple this with commitment from people you trust.

In 1966 the UK implementation in the manufacturing industry by the Duke of Edinburgh called Q & R – Quality & Reliability - was about change in attitude, process, measurement, effi ciency and customer focus. It was about continuous improvement, and 46 years ago, was on everyone’s agenda. It’s nothing new except for the fact that we now have smart tools. Life then moved on to O & M – Organisation & Methods –shorthand for clock watching tasks and doing things faster for less but at the same quality – greater structure and fewer people. We then moved to Kaizen

theories and production line improvement methods, and then on to Six Sigma - the martial arts of change management.

All good stuff but slavish adherence to all of these great new techniques is not the way forward; as with everything in life you pick the good bits and make them fi t for what you want to do. There is no magic template that you can just pick up and implement. Change is about people fi rst, process second and systems a poor third, and that is the rule of life in everything we do. We must never lose sight of the key importance of people.

At Hawksford we implemented more than 50 changes in 24 months including systems, processes, the organisational structure and rebranding. Key to the change programme were three interlinked elements: people, process and enablement. Success depended upon fast action, coupled with three acquisitions and their integration, a major client insight programme, a brand and service line refresh, a new human resources structure and new learning and development strategies. It was important that we did all of this without having a negative impact on our service – change should enhance client service.

In change management you need confi dence and belief that you are always right, which of course you are not and never will be. The most important thing when it comes to change is if it is the right thing to do, go for it, don’t drag your heels because of potential bumps along the way, and the end result will be worth it. To quote Karen Lamb, ‘a year from now you may wish you had started today’.

To change or not to change – there is no questionPeter Murley Chief Executive Offi cer

T: +44 (0) 1534 740132E: [email protected]

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Trustees presented with the not uncommon scenario of a settlor wishing to retain certain controls over the trust can face a number of challenges, the key one being how to balance the settlor’s desire to retain control against the risks of compromising the essential validity of the trust.

This article will seek to summarise some of the potential ways in which a settlor’s desire to retain control - specifically in relation to investment strategy but also more generally - might be accommodated.

It is increasingly likely that prospective settlors with an entrepreneurial flair will only consider establishing a trust if they feel that there are sufficient safeguards to ensure that the trustees will accommodate that flair. The challenges can be particularly acute for the trustees of traditionally drawn trusts with either an entrepreneurial settlor or beneficiaries who are no longer convinced that the trustees should invest in a conventional trust portfolio, especially where the trustees may, at the request of the settlor, have invested in what might be considered more speculative or higher risk trustee investments. Recognising that basic trust law does not permit trustees to balance out their wins and losses it may, in these circumstances, be appropriate for trustees wishing to continue to accommodate the entrepreneurial spirit within their investment strategy to consider whether their powers or indeed the trust structure could be varied - if not to mitigate a potential breach of trust action in relation to past investments, at least to mitigate the likelihood of future actions.

Reserving powers to settlorsIn some cases the settlor will personally wish to retain the right to be involved with the exercise of the trustees’ principal discretions and subject to certain legal and sometimes tax constraints this can often be accommodated. It is not at all uncommon for a settlor to want to retain the power to hire and fire trustees, to change the proper law and also, in certain cases, to be consulted on the exercise of significant discretions such as the addition and exclusion of beneficiaries from the beneficial class. The settlor may also wish to be involved with formulating the trustees’ investment strategy

and sometimes approving specific investments themselves. In considering whether or not it is appropriate to retain such powers the settlor should be advised on whether there may be any adverse tax implications and be aware of the possibility that an aggrieved party could in the future allege that the trust was in fact a sham - i.e. that neither the settlor nor the trustee actually intended to enter into a trustee relationship at all.

Where a settlor wishes to retain significant powers the trustees will be well advised to consider carefully at the outset whether they feel comfortable with the concept that they have, however properly, abrogated powers they would traditionally expect to exercise.

Appointment of a protectorWhere a settlor wishes to retain certain controls but does not actually wish to exercise the controls himself he may consider the appointment of a protector. The protector may retain some of the powers referred to above, or the trust may make the exercise of certain powers subject to protector consent. Most commonly this will include the trustees’ discretion to make capital distributions. As before, trustees have to be happy that the proposed relationship will work - and in this context they will be well advised to ensure that they have met with the protector and that he fully understands the nature and extent of his role. Whilst the protector is often a friend or trusted advisor of the settlor it is helpful to ensure that they are pragmatic and, if necessary, willing to challenge the settlor should any requested exercise of the protector’s powers appear to be inappropriate. Where protectorship works well there is no doubt that it can considerably enhance the relationship between trustees and beneficiaries - but the trustees must equally be alive to the possibility that the relationship could break down. Examples of this may be because the protector does not wish to get involved in trust matters, or where the protector finds themselves siding too often with certain beneficiaries. This can put the trustees in a very challenging position, at worst leading to an application to court. Wherever protectorship provisions are to be incorporated within trust documentation trustees should check those provisions very carefully to ensure that they will not find themselves compromised if the relationship should break down.

Investment director provisionsExperience suggests that more and more entrepreneurial settlors are wishing to be closely involved with the trustees’ investment

Retention of Control: balancing a settlor’s aspirations with trustee responsibilities

Laura Le Meur Senior Associate Solicitor


Michael PowellDirector


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strategy. To accommodate this, investment director provisions could be incorporated within the terms of the new trust. These can provide the settlor (or anyone of his choice) with wide powers in relation to the trustees’ investment responsibility, which can include the choice of investments and the timing of making and realising those investments. As stated above, the trustees will have to be certain that they can live with the abrogation of something which would customarily be one of their principal responsibilities - and in coming to this conclusion they will no doubt take into account the investment experience of the settlor or proposed appointee. Looking ahead, there must always be a question as to how the trustees would react if a well informed investment director were to request them to make an investment which they found completely inconsistent with previous practice. The trustees should consider such an eventuality before taking on the trusteeship. There is of course always the risk that the trustees could find themselves in an impossible situation where they totally disagree with an investment recommendation but have no alternative but to accede to it according to the terms of the trust. Natural fiduciary caution would be justified here but the trustee would have to hope that the widely drawn exoneration clause (which would almost inevitably have formed part of the investment director provisions) would be construed so as to protect the trustee from any breach of trust claim. A trustee will also clearly have to hope that the courts prove sympathetic; for most traditional trustees it has to be admitted that such a situation will continue to provide some uncertainty until the courts have been given an opportunity to opine on the effectiveness of such provisions in practice.

Letter of wishesA letter of wishes (sometimes called a memorandum of wishes) is a letter provided by the settlor to his trustees to provide guidance on how he would wish the trust to be administered. The letter may be as short or as comprehensive as desired by the settlor. Subject to some constraints on its terms (which might otherwise impugn the validity of the trust itself) the letter can seek to provide very detailed guidance to the trustees in relation to many matters including the investment strategy. In some cases the settlor will ask the trustees to communicate with him during his life and not to agree to any investment strategy or make any particular investment decision without reference to him in the first instance. A letter of wishes is not binding on the trustees - and for most entrepreneurial settlors setting up a new trust it is unlikely that they would be sufficiently comforted by the letter alone. In many cases they will want the retention of their powers to be included within the binding trust documentation.

Investment management committeeIn certain instances where there is an entrepreneurial settlor (and the value of the trust fund justifies it) the trustees might consider establishing an investment management committee advisory board to sit underneath the trust. At Hawksford we are currently working on an application that is shortly to be made to the court in relation to a pre-existing trust to approve the establishment of an investment management committee, which will comprise a number of successful business people with considerable appropriate experience in the areas in which the settlor operates. These people will come together as a committee to consider every recommendation made by the settlor before deciding which of those recommendations should be forwarded to the trustee with an indication that they should be approved. It would be quite possible to build such provisions into a new trust if appropriate.

CommunicationIt is entirely understandable that a prospective settlor will wish the trustees to accommodate his desire to retain control when creating a bespoke trust deed. However, it should always be the trustees’ objective to establish, through regular communication, a relationship with the settlor which enables them to fully understand his objectives and motives, so that they would feel comfortable challenging him if it should become necessary. Trustees should be able to have an open discussion with the settlor if they consider that any particular investment recommendation does not fall within the parameters anticipated at the outset of the relationship. For example, if the settlor is seeking to run a number of different entrepreneurial projects, the trustee may feel that it would be more appropriate to reduce the focus to one or two because he cannot devote sufficient time to each of them. In another example it might be appropriate for the trustee to recommend that the settlor delegates responsibilities to people who are operationally knowledgeable once he has had his good idea. It may also prove appropriate to recommend to the settlor that the trustee reduces its risk by encouraging external investment, or promotes potential success by diluting its shareholding in order to encourage investment in a start up situation to take it to the next level. There are indeed many ways in which trustees can assist entrepreneurial settlors by establishing an open and robust relationship.

FoundationsIn seeking to establish an appropriate relationship a service provider may in fact conclude that a trust is not the most appropriate vehicle through which to structure and meet an entrepreneurial client’s objectives. A foundation, with its contractual base and appointed council, may be considered to be a much more appropriate means by which a client can retain control - though an open mind should always be maintained.

Star TrustsIf conventional trust arrangements do not seem appropriate, consideration could also be given to the establishment of a Cayman Star Trust, which incorporates provisions very specifically designed to ensure that the trustees will not to any extent interfere in the activities of companies comprising the trust funds. This is perhaps the ultimate instance of the settlor retaining control. Whether other issues might arise, including potential attacks on the validity of the structure and/or possible tax concerns, would have to be considered in the context of each individual’s circumstances at the outset.

SummaryAs will be appreciated from the above examples, which are by no means exhaustive, there are many ways in which a settlor who wishes to retain control can do so. In all cases it is essential for trustees to fully understand what their prospective client wants; really knowing the client before deciding what is appropriate. In many cases it may transpire that the settlor would in fact be happy with arrangements which are also entirely consistent with the trustees’ objectives, once they have been assured that a solid and trusting relationship can be established. The ultimate objective must be a structure which fully recognises the client’s objectives but also leaves the trustees comfortable that they are able to work within the trust documentation and meet all of their fiduciary duties and responsibilities.

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As a trustee, you are not only responsible for administering a trust but also for ensuring trust assets are properly managed. This often involves ensuring the right investments and advisers are in place.

The challenges trustees face are wide-ranging and might include how to successfully invest the trust fund to meet the needs of different beneficiaries, ensuring their best interests are met; satisfying income requirements whilst preserving capital; matching portfolio risk with the needs of the trust and whether to invest onshore or offshore.

Historically, trustees have delegated the responsibility for the investment of trust funds to stockbrokers in the belief, encouraged by the courts, that they were the professionals most suitable to provide the required investment advice. However recent stock market events have focused trustees on gaining greater diversification than that which might be available to stockbrokers.

Since the turn of the century we have experienced many events which have dramatically affected stock market values. An increased recognition of the potential value of a diversified approach to investment management has led to the word diversification becoming embodied in legislation. For trustees, now more than ever, diversification across different asset classes within a portfolio, to reduce risk, is at the forefront of investment discussions.

But just as much as diversification to reduce investment risk is now a priority for trustees, so is the priority for the client of tax efficiency and fees. So how can all these priorities balance? With beneficiaries resident all over the globe some may think structuring a trust tax efficiently, whilst meeting the needs of everyone, has become impossible. Not so!

For trust funds of all sizes with different investment objectives, whether requiring investments onshore, offshore or both whilst trying to achieve tax efficiency, there are answers. Often an appropriate solution for trustees to achieve all this is to use an investment bond. The bond, and the funds within, can provide income, capital growth or a mix of the two. An investment bond can be onshore or offshore and trustees are entitled to withdraw 5% from the investment annually without creating a tax liability. They are particularly suitable as trustee investments where the recipient beneficiary is a UK taxpayer.

The use of investment bonds can avoid the complex treatment of income, particularly within discretionary trusts. Providing the trustees do not withdraw in excess of the 5% capital allowance in any one year, which might otherwise cause an income tax liability, beneficiaries can potentially receive the return of 100% of the capital invested tax free, without annual tax charges on the growth. In respect of UK beneficiaries, care has to be taken to ensure no foreign income or chargeable gains exist within the trust. In the event they do, the 5% allowance may not be tax deferred.

It has been suggested that regular payments of capital to beneficiaries could be regarded as income and taxed as such in their hands. However in the case of

Stevenson v Wishart*, under the terms of a discretionary trust, trustees made payments for a beneficiary’s nursing home expenses out of trust capital and HMRC confirmed these payments did not create an entitlement or right to income. Had the trust been structured so as to produce a natural income, e.g. using direct investment into shares, income tax would have been payable.

So whatever the size of trust, tax efficient trustee investments are available, particularly for UK resident beneficiaries. These investments don’t create annual income or capital gains to report and they can be structured to simplify the administration of the trust… but what about diversification and managing risk?

The funds available through investment bonds make it easy to diversify the trust investments and manage investment risk. A typical range of funds will allow diversification by way of asset class, geography, market capitalisation and even the investment style of the fund managers.

Trustees invest in the life policy, not directly in the underlying funds therefore switching does not involve selling one fund and buying another, as it would, for example, if you invested using unit trusts. Changing the portfolio to match the changing requirements of the beneficiaries can therefore be achieved without incurring a liability to capital gains tax, and because fund switches are not treated as taxable events, no liability to income tax arises either.

In conclusion, whilst not being the answer to all the requirements a trustee might face, an investment bond, in the right circumstances, offers many advantages.

The investment challenges of trusteeship Alexandra Webster

Solicitor, Development & Technical Consultancy St. James’s Place Wealth Management


* [1987] STC 266

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Market update

Lynda O'MahoneyBusiness Development Manager - Middle East

T: +971 50 8595564

E: [email protected]

Switzerland–––––––––––––––––––––––––Switzerland has been in the headlines on a regular basis over the last couple of years, as banks here have been facing attacks from tax authorities in the US, Germany and the UK. Continuing data theft issues and the collapse of Wegelin, the country’s oldest private bank, are testament to this.

There is a widely held misconception that Switzerland as a jurisdiction serves to facilitate tax evasion and the sheltering of ‘black money’. Whilst historically this has to an extent been the case, Switzerland has made huge strides in recent years to assist the clampdown on tax evasion so that the reality is very different.

Under the terms of the deal made between the UK and Switzerland, financial privacy is still available but only to those prepared to pay a high price. Switzerland is positioning itself well for the future by accepting and emphasising the importance of only handling assets that are subject to proper taxation.

The anti-money laundering rules are also extremely robust, and companies that fall foul face severe penalties. The due diligence process required of asset handling businesses is rigid and thorough, ensuring that the days of Switzerland being used as a port of call for undeclared funds or the proceeds of criminal activity are consigned to the past.

In light of this, and the emergence of other jurisdictions such as Singapore and Hong Kong as true private wealth giants, it is interesting that the assets held in Switzerland have been increasing steadily in recent years. This can be attributed to the political stability (particularly important when considering the turbulence in the oil-rich Arab countries) and the traditional expertise and levels of service in wealth management.

High net worth individuals need to be able to rely on their bankers, advisers and trustees, and the Swiss wealth structuring industry has historically been built with a focus on trusted relationships. It is therefore no surprise that with a fresh appetite to lead the way in compliance and reputation, the wealth and fiduciary

services industry goes from strength to strength in Switzerland.

Dubai––––––––––––––––––––––––––In March this year, the UK Chancellor, George Osborne, introduced new measures to increase stamp duty, extend the capital gains tax regime and introduce an annual levy where UK residential properties for more than £2m (and assets that represent such) are held by “non-natural” persons, including where they are non-resident.

These changes have been introduced with a view to “ensuring the fair taxation of residential property transactions”. It could be argued that the introduction of these changes have mostly been directed towards non-domiciled individuals who, in looking to acquire high value UK residential property, have taken professional advice and then created some form of structure, so that those properties are not held in their own name. However, if we look at the UK tax payers who may be affected, we see these changes could impact upon property investment companies, collective investment vehicles or property developers owning high value UK residential properties.

Many of our clients come from outside the United Kingdom, including the Middle East, India and the Far East. In looking to structure their affairs outside their home country, one of the reasons for creating some form of structure is privacy. We believe that desire will continue.

Where do we go from here? Many advisers have spent their spring and summer months fretting on how to deal with these changes. Here at Hawksford, we believe the action to be taken now and future action should include:

Gathering information and taking preliminary advice, including ball-park valuations, and a review of the underlying purpose.

Now is not the time for wholesale unscrambling, given the costs involved and the tax complexities, especially since there is no mechanism or “amnesty” period for tax-neutral unwinding or reorganising before April 2013, and since there is as yet no certainty about the effectiveness of some of the proposed solutions.

Individuals who are likely to be affected by the proposals should discuss them with their tax advisers to see how they are likely to be impacted and the possible solutions, but with a view to being able to take swift action as and when the detail of the law is known.

It must be borne in mind that all relevant information, valuations and all rebasing or other restructuring as is necessary will need to be in place before the end of March 2013. This means preliminary work is needed now. The review window is narrow and closes on 31st March. Much of the planning is likely to be centred on the rebasing of acquisition costs for CGT purposes.

A full briefing, including early work we

recommend, is available in the news section of

our website: www.hawksford.com.

Despite these changes, we do believe London continues to be an attractive place for many around the world who seek a residential base in the capital. Undoubtedly the acquisition and ongoing costs may increase, but these factors will simply be taken into account when looking at acquiring such property in the relatively safe haven of London when compared with other centres around the world.

Grant Osborn-SmithDirector

T: +41 (0)43 500 3875E: [email protected]

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Deborah ClarkHead of Private Tax & Trusts, Manchester, Mills & Reeve

T: +44 (0) 161 235 5432E: [email protected]

In the pursuit of common goals and the ‘marriage’ of ideas between friends, family or close business partners, it is easy to brush aside the details on the understanding that ‘everything will pan out’ or that you will deal with problems reactively as and when they arise. A shareholders’ agreement, analogous to a pre-marital agreement, is a private agreement between you and your business partner(s); clarifying your responsibilities to one another, what happens when circumstances change, and more. In fact, the agreement could be crafted to cover almost any area of uncertainty between shareholders, leaving you much less scope for argument and giving you more time to concentrate on your wider business plan.

SHAREHOLDERS’ AGREEMENTS – EXAMPLES OF WHAT IS COMMONLY COVERED:

Control of the directorsThe default position is that shareholders do not exercise day-to-day control over the company affairs, this is managed by the directors. If all the shareholders are also directors this may be satisfactory, but if you are not a director you may want to ensure you have some say in the company’s management to protect your investment. A shareholders’ agreement can require unanimous, or some other level of, shareholder consent before the directors take certain action. For example, entering into transactions over a certain value or expansion of the business, could be controlled at shareholder level. It might also be important to include provisions or restrictions on the appointment and removal of directors to protect your position.

Deciding on salary and dividendsSetting out a framework for varying the salaries of directors or a policy for declaring dividends can give certainty to all the contributors to the business, avoiding disappointment later down the line. The agreement could set annual dividends at a certain percentage of the company’s profits and require profit retention for future growth and expansion.

Transfer of sharesMany do not consider from the outset that a business partner’s circumstances may change such that he might have to leave the company. A shareholder can usually transfer his shares to anybody he wishes, which might leave remaining shareholders with a partner they do not recognise and who does not share a common agenda.

A shareholders’ agreement would typically provide a mechanism for remaining shareholders to have a right to acquire shares from an exiting shareholder in certain circumstances. It is common for such a right to arise if a shareholder leaves employment or dies. However, consideration should also be given to other situations such as divorce. For example, if one shareholder has passed shares to his wife and then suffers a divorce you may want to recover the shares from the ex-wife.

The agreement could also set out the circumstances when shares can be sold or transferred to certain people (i.e. spouses, family members or trusts). Any new shareholders would be required to sign the shareholders’ agreement. In the event of an acquisition of the company by a third-party buyer, minority shareholders could be protected by including a right for them to sell their shares along with the majority, or conversely the minority could be

forced to accept an offer if a buyer wanted to purchase all the shares. Such provisions are typically known as ‘drag and tag’ along provisions.

Deadlock If you have an equal shareholding with one or more business partners, ‘deadlock’ occurs when no majority decision can be reached over a certain issue. If deadlock was to occur frequently, it could become difficult for important decisions to be made, at the expense of the company and its profits. The shareholders’ agreement could include a veto for certain matters which any shareholder could exercise. This protects the interests of minority shareholders, but should be restricted so it does not prejudice wider decision-making.

The Shareholders’ Agreement and Articles of AssociationWhere a shareholders’ agreement deals with the relationship between shareholders, a company’s articles of association (which is a public document) deals with the relationship between the company and its shareholders, and the general principles of how the company will be run. For this reason, it is often recommended to review and consider the company’s articles whenever a shareholders’ agreement is being considered. The articles may need to reflect what has been agreed, and to harmonise the approach to management and procedure in both documents ensuring that one supports the other.

In conclusion, if you are embarking on a new venture or are part of any existing venture, it would be wise to reach agreement on key issues at the outset and document them in order to minimise problems and avoid disagreement later on down the line.

The ‘Company Pre-nup’: providing certainty and security for your business interests

This article was first published in Mills & Reeve’s Summer 2012 publication, Private Affairs. The publication can be found at http://www.mills-reeve.com/privateaffairs_summer2012/

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In January 2012 Jersey introduced an additional choice of fund regulation, thanks to the introduction of the private placement fund (PPF) regime.

The PPF is a welcome addition due to its speed and light touch regulation, not to mention its cost effectiveness when compared with other fund regimes. There is a range of fund regulations available in Jersey, from a very private fund, which is offered to no more than 15 professional investors with minimal regulation, to the collective investment fund regime catering for funds with over 50 investors. Where the fund intends to offer to between 15 and 50 investors, there are a number of options such as an Expert Fund or a COBO (Control of Borrowing (Jersey) Order 1958) only fund. However, PPFs allow a more cost effective and streamlined solution to cater for this area and be of most interest to the private equity, real estate, and alternative asset class market. In order to be regulated as a PPF, the fund must: • beaclosed-endedfundestablishedin

Jersey or established outside Jersey but managed in Jersey as a closed-ended fund;

• notmakemorethan50offerstopotentialinvestors; and

• onlyacceptprofessionalorsophisticatedinvestors.

Professional or sophisticated investors are defined in the PPF guide published by the Jersey Financial Services Commission (JFSC). In summary: A sophisticated investor is: • aninvestorwhomakesaminimuminitial

investment or investment commitment of £250,000 (or currency equivalent).

A professional investor is:• apersonwhohabituallyinvests(as

principal or agent) by way of business;• aninvestmentstructurewithassets

valued at over USD10m;• certain‘eligibleemployees’ofthePPF's

investment manager or advisor who carry on investment business in relation to the PPF; and

• senioremployees,directors,partners,shareholders or consultants of the PPF or its investment management or advisory team, who receive their interests by way of remuneration or carried interest.

There are fewer accounting requirements for a PPF compared to a fund regulated as an Expert Fund or COBO only fund. Under the PPF, accounts still need to be audited but need only be filed with the JFSC if they are qualified. Under the COBO only fund there is a promoter test requiring a pre-clearance from the JFSC, which often delays the set up to around 20 days. PPFs broadly follow the provisions of an Expert Fund with a ‘self-certification’ process and mean a faster JFSC approval process of 72 hours. The Jersey based administrator to the fund must do its own due diligence on the promoter to ensure it satisfies the suitability requirements contained in the PPF guide. The promoter must be of good standing and solvent, must be established in an OECD

member state or country with which the JFSC has a memorandum of understanding and the principal persons of the promoter must not have had any disciplinary actions, sanctions or convictions. It is envisaged the PPF regime will effectively render the COBO only fund obsolete, in preference to its speed and flexibility. An Expert Fund will still have its uses, especially as it can be open-ended, make unlimited offers and accept investors with an investment of USD100,000. However, the lighter regulation of the PPF means this is a more cost effective option than an Expert Fund. Jersey has a vast range of investment vehicles, which can be used for funds. The PPF can be structured in any form of vehicle, which is recognised in Jersey, such as: • acompany;• aprotectedcellcompany;• anincorporatedcellcompany;• aunittrust;• alimitedpartnership;• alimitedliabilitypartnership;• anincorporatedlimitedpartnership;or• aseparatelimitedpartnership. The choice of vehicle will largely depend on the preference of the promoter, who in most cases will be led by corner stone investors where taxation in their jurisdiction needs to be considered. For example, there could be withholding tax issues on distributions from a Jersey company in certain jurisdictions, which do not have double taxation agreements in place. However, a limited partnership would be tax transparent in most jurisdictions and offer a tax neutral platform to pool investment.

New fund regulation in Jersey - a welcome step change Charles Millard-Beer

Head of Fund Administration

T: +44 (0) 1534 740260E: charles.millard-beer@ hawksford.com

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A brief guide to… Switzerland

Tim Urquhart is one of the founders of L-S&S, a boutique law firm in Zurich specialising in wealth structuring. L-S&S was acquired by Hawksford in 2011.

Hawksford’s growth strategy targeted the acquisition of a company in Switzerland and in August 2011 Hawksford acquired L-S&S, based in Zurich. This acquisition furthered the Group’s global expansion, which earlier in the year also saw the opening of a Dubai office.

SWITZERLAND - An overview Switzerland, historically a neutral country, is known for its watches, chocolate, and skiing. Additionally, its political stability, security and prosperity are complemented by its reputation as a safe haven for investments. Its main cities have consistently been ranked in the top 10 of ‘quality of life’ surveys and it is regarded as one of the world’s more important financial centres.

Contrary to the position often publicised in the foreign press, while Switzerland may be a safe haven, it is not accurate to describe it as a tax haven! Overall tax rates and social charges, while not as high as some EU member countries, can in certain instances be higher than others – the highest earners in Geneva, for example, can pay up to 50% income tax.

Mercer’s cost of living survey ranks Zurich the sixth most expensive city in which to reside, ahead of London, Paris and Frankfurt but after Tokyo.

TaxationTaxation is levied by federal, cantonal and communal/municipal authorities. Tax rates vary and the choice of canton is important. Compare Geneva’s highest rate of 50% with Schwyz at 20%. Corporate tax rates vary widely.

Wealthy foreigners who live (they must not work) in Switzerland, favour the attractive “lump sum” agreement, allowing one to negotiate to pay income tax at a level determined by living expenses rather than worldwide income.

The basic conditions required for a lump sum assessment are:• thetaxpayermustbecomingtoliveinSwitzerlandforthefirst

time; and• thetaxpayer,andnormallyhisspouse,mustnotreceiveany

earned income from an occupation pursued in Switzerland (even self-employment).

Present lump sum arrangements are currently under review - if agreed the minimum income amount assessed for the basis of the amount paid will be CHF500,000. The lump sum payment does not cover estate, property or capital gains taxes. The only treaty exemption is for income taxes.

6th October 2011 saw the publication of the much-heralded UK-Swiss tax agreement (effective in 2013). Subject to ratification by both parliaments, it will apply to UK resident beneficial owners of Swiss bankable assets. It allows holders of Swiss bank accounts to maintain anonymity, whilst enabling the UK Revenue to claim tax on Swiss assets. The tax charge is in two parts; a one-off charge (expected to amount to 20% to 25% in most cases) to cover past taxes due. It does not offer guaranteed immunity from prosecution, but imposes a withholding tax on income and gains going forward. Non-domiciled residents of the UK are not exempt from the agreement, but are subject to modified rules that will limit their exposure in some cases.

Wealth tax is levied in some cantons but not others. Tax is levied as part of the income tax calculation and paid at the same time.

Many cantons also levy succession and gifts taxes and amounts vary widely. Universally gifts to spouses are exempt. Gifts to and distributions from trusts are included in these taxes.

DOING BUSINESS IN SWITZERLANDSwiss business tends to be conducted on a more formal basis than some countries - formal means of address are adopted. First names are rarely used, unless the parties know each other well. The well-publicised banking secrecy (more properly translated as “confidentiality”) is extended by law into all fields of business, so that personal questions (age, religion, background, and private matters) may not be asked. Confidentiality is deeply rooted and taken very seriously in Switzerland and this is widely misunderstood.

Tim Urquhart LS&S GmbH, part of the Hawksford Group

Tim UrquhartConsultant


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| Winter 2012/2013

Meet the L-S&S, Zurich team:

Tim Urquhart Consultant


Grant Osborn-SmithDirector

T: +41 (0)43 500 3875E: [email protected]

Julian HaydenDirector


Tim CartwrightDirector


CompaniesMost common: • thepubliclimitedcompany-theAG(German)orSA(French/

Italian) - minimum capital: CHF 100,000.• theprivatelimitedcompany-theGmbH(German)SARL

(French) and SRL (Italian) - minimum share capital is CHF 20,000.

Regulation and stabilityThe Swiss regulators have won praise from the Financial Stability Board for imposing tough capital and supervisory rules on the country’s two biggest lenders, UBS and Credit Suisse Group, in the wake of the 2008 financial crisis.

With its strong economy and well-regulated financial sector, Switzerland has managed to avoid much of the economic woes that Europe has suffered from since 2008. The Swiss financial markets supervisorisnowsteppingupitsfocusonthecountry'sboominghousing market to try to avoid a potential price bubble developing. Property prices have been on the rise, particularly in the prime lakeside locations in Zurich and Geneva, fuelled by zero percent interest rates and rising demand from cash-rich immigrants.

Immigration into SwitzerlandImmigrants need work and residence permits; working permits are in two classifications; EU citizens and others outside the EU. In the absence of special circumstances (criminal convictions, etc.), EU citizens now have a right to work and therefore to live in Switzerland. Recent changes to the law, allow an applicant with a “CE” permit to live and work anywhere in Switzerland and to rent or purchase a house to live in wherever he or she wants.

For those from a non-EU country, the regime is much more restrictive. A non-EU applicant will normally only be eligible for a “B” permit, which limits the individual to the job applied for and to living in the canton of their employment.

Those applying to live in Switzerland under the lump sum agreement receive a special permit restricted to the canton granting the deal.

Either way, Switzerland remains an attractive jurisdiction for either individuals or companies looking for a new home.

Tim UrquhartConsultant


"Mercer’s cost of living survey ranks Zurich the 6th

most expensive city in which to reside, ahead of London,

Paris and Frankfurt but after Tokyo."

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Hawksford Group (and Hawksford International) are the Registered Business Names of Hawksford Trust Company Jersey Limited which is regulated by the Jersey Financial Services Commission.

FiduciaryFamily OfficeWills & ProbateSuccession PlanningEmployee Solutions Funds AdvisoryMedia & SportsL-S&S GmbHpart of the Hawksford Group

Hawksford Group Jersey | British Virgin Islands New Zealand | Singapore Switzerland | United Arab Emirates

15 Esplanade, St HelierJersey, JE1 1RB Channel IslandsT +44 (0)1534 740 000F +44 (0)1534 740 074www.hawksford.com

For feedback and suggestions, or if you would like to contribute to future editions of Hawk-i, please contact:

Rebecca StannardMarketing & Communications Manager


| Winter 2012/2013

hawk-i newsletter - november 2012

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