Hawki Issue 7 - Summer 2013 by Hawksford

Issue 7

Summer 2013

IN THIS ISSUE Page 2 - “Client service v Client experience” - Peter Murley - Chief Executive Officer, Hawksford GUEST

Page 4 - “Petrodel Resources Ltd and others V Prest” - Andrea Zavos - Partner, Speechly Bircham Page 6 - “Incorporated Ltd Partnerships and Separate Ltd Partnerships” - Carl McConnell - Associate Solitictor, Hawksford Page 8 - “The Jersey Foundation” - Julian Hayden - Director, Hawksford Page 10 - “What are the differing attitudes to the Swiss banking secrecy?” - Marc Renggli - Senior Lawyer, Hawksford LSS GmbH

GUEST

Page 11 - “The bigger picture” - Mark Littlewood - Director General, Institute of Economic Affairs

Issue 7

Summer 2013

Client service v Client experience During 2013 Hawksford has implemented a number of initiatives and programmes to enable our people to focus more of their time on adding value to clients. As part of this process we have identified a set of client service principles. A key matter for any organisation, including Hawksford, is to understand the differences between good client service and an excellent client experience and how this compares to the actual experience.

Peter Murley Chief Executive Officer T: +44 (0) 1534 740132 E: peter.murley@hawksford.com

Client service Hawksford always sets out to offer excellent client service to its clients. But in reality, is excellent service enough and what does that mean anyway? Well, it sure is a good start, but in a world where everybody is trying to differentiate their service models, or in markets where, for example, products from different providers are similar in nature, or price, or shape, excellent service is something you should expect and demand as a norm. Excellent service, in my book, is always doing what is promised and where possible, going the extra mile. It’s about doing it all consistently. Whoever speaks with you or communicates with you should give the same answers to the same questions. It’s about embracing complaints or comments and critiques, as that’s the only way we will learn how to improve.

Multiple research programmes conclude the same thing: clients, whether current or prospective, want a service or product which is of good and consistent quality, is convenient, swift, to the point, costeffective, packaged properly and simply and which guarantees to solve problems. The proof of that particular pudding involves us, the service provider, keeping our promises, being accurate, admitting when we’ve got this wrong and finding resolutions. Clients require us to be competent, professional, responsive, reliable and credible. None of this requires a degree in nuclear physics. Great client service can happen in one exceptional situation or on a number of occasions. This might be a productive telephone call from a very helpful and knowledgeable person, or a memorable

“Excellent service, in my book, is always doing what is promised and where possible, going the extra mile.”

meet and greet in a retail store. This great service should be consistent, in that each time you make a contact by the same mechanism or ‘access route’, the experience is the same: it is impressive, it receives your admiration, or possibly even your loyalty (another subject in its own right), and you will tell others of your experience. It is always people who offer client service and they are the key differentiator in business - at Hawksford we believe this absolutely.

“A great client experience is about all the things every single person in the organisation says and does. EVERYBODY is a contributor to this experience - they live and breathe the values of the product and the business, they believe in them and that always comes across in everything they do and say.” Client experience A great ‘client experience’ (note the exclusion of the word service) is about the very fabric of an organisation - the warp and the weave, something that always permeates the essence of the company, whatever you do, whoever you are, whenever or wherever it takes place and whomever you touch. It is much more endearing and lasting than simply ‘client service’. The exclusion of one word - ‘service’ - is far more than semantics. A great ‘client experience’ is where everyone you speak to in the organisation delivers everything you expected, demanded and hoped for as a client and far more besides, every single time. It is so consistent that it becomes unconditionally associated

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with your brand. When you reflect on your experience, you judge others against it in broad terms, i.e. ‘I get that when I deal with Fred Bloggs Ltd’, or you might judge others against it in specific terms, i.e. ‘I never got that when I was a Jones mobile client’. A great client experience is about all the things every single person in the organisation says and does. EVERYBODY is a contributor to this experience they live and breathe the values of the product and the business, they believe in them and that always comes across in everything they do and say. Passion, empathy, understanding, and everyone sharing the same set of overall values

Keeping our promise Consistency Competence Credibility and reliability Responsiveness

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and beliefs, are key ingredients of an excellent client experience. A great client experience has a significantly higher chance of creating lasting loyalty and genuine recommendation as it is based on consistent excellence, a single voice, client-centric processes and a singleminded vision. We are on that journey. Like all journeys, they have twists and turns, but we are striving to provide you with a great client experience. As I mentioned earlier, we have identified a set of core values, which clearly outline our commitment to our clients and their advisers. These can be summarised as:

Accuracy Courtesy Admitting errors Fairness TRUSTWORTHINESS

Please let us know when we do provide a great experience and how we did so, however, it is also important to let us know when we don’t meet your expectations. Enjoy the sun before it goes back from whence it came!

Issue 7

Summer 2013

Petrodel Resources Ltd and others v Prest: travesty or triumph? The Supreme Court 1 has found unanimously in favour of a wife who pursued assets held by her former husband’s companies to satisfy an award made in her favour following her divorce. This landmark decision brought into sharp relief the question of whether assets can be legitimately tied up (or put beyond reach depending on your perspective) in a spouse’s companies.

Andrea Zavos

Fairness

The law

Another way

In The Supreme Court, Mr Prest’s ex-wife was awarded £17.5 million of her husband’s estate, which is estimated to be worth at least £37.5 million. Mr Prest resisted his wife’s claims for financial relief on every imaginable ground. Most significantly he argued that certain properties could not be transferred to his wife as they did not belong to him but to a number of companies, which he did not own. Moylan J, who heard the original case, rejected Mr Prest’s claims to be heavily in debt, finding him a “wholly unreliable” witness and concluding that the other directors of Mr Prest’s companies were mere “stooges”. Moylan J found that Mr Prest was ‘entitled’ to the properties pursuant to s.24(1)(a) of the Matrimonial Causes Act 1973 (the MCA).

Following a legal challenge brought on behalf of three of the companies, the Court of Appeal 2 restated the position in Salomon v. A. Salomon & Co Limited 3: The properties belonged to the companies which were entities, with separate legal personalities. Whether it was fair or not, the court could not order their transfer just because Mr Prest controlled the companies. Serious impropriety would have to be shown if the corporate veil of any of the companies was to be pierced. Given the legion of cases where a settlement or company does not directly own the underlying assets but where there is an interposed company or two (usually offshore), was the Court of Appeal sanctioning a cheat’s charter or was it upholding a fundamental principle of company law?

Mrs Prest was granted leave to take the case to The Supreme Court and in the meantime, another matrimonial case was heard, DR v GR and Others (Financial Remedy: Variation of Overseas Trust) 4. This case covered similar ground, whilst at the same time, setting out a helpful formulation of when trustees should be joined in divorce proceedings - so I will digress briefly.

“To ward off a flood, the Supreme Court cautioned that whether assets vested in a company are beneficially owned by its controller is a highly fact specific issue. ”

Partner - Contentious Trusts and Estates group Speechly Bircham T: +44 (0) 20 7427 6453 E: andrea.zavos@speechlys.com

In this case the wife applied for the variation of a post nuptial settlement to recover money owed by her husband following divorce proceedings. The settlement was a discretionary Jersey trust which owned a Liberian company, which in turn owned UK companies whose assets were two retirement villages in the UK.

The companies argued that the effect of The Court of Appeal decision in Prest meant that the court could only order a variation to the holdings of the Liberian company (because it was held directly by the trust) and could not look down the structure and deal with the assets held by the UK companies. However, the court ruled that if the company’s argument as to the effect of Prest was right, the jurisdiction would be almost totally emasculated. Mostyn J held that where a family company like this one made some form of continuing provision for both or either of the parties to a marriage it was capable, of itself, of amounting to a variable nuptial settlement, whether or not the company was owned by a trust of which the spouses were former beneficiaries. In this way he found the entire structure comprised a variable post nuptial settlement and dealt with the underlying assets directly. He then moved on to consider the practice of joining trustees and/or underlying companies to variation of post nuptial settlement cases. The trustees had not participated and the underlying companies made their own application to be disjoined from the proceedings. Mostyn J said that if trustees and/or underlying companies are to be joined, the Family Procedure Rules 9.26B must all be satisfied. He ruled that in a variation of settlement case, the trustees and/or underlying companies should be served with notice but not automatically joined to the proceedings. Once served, the trustees and/or underlying companies could file a response and decide whether to appear as a witness or be represented in the proceedings.

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[2013] UKSC 34 [2012] EWEA Civ 1395 [1897] AC 22 [2013] EWHC 1196 (Fam) [2012] EWEA Civ 1395 para 55 Para 43 Para 44

The third way Back to The Supreme Court’s decision in Prest. The case revolved around s.24(i)(a) of the MCA which allows the court to order a party to financial remedy proceedings to transfer property to which it is ‘entitled in possession or in reversion’ to the the other party. The Court of Appeal had observed that the Family Division had treated the assets of a company substantially owned by one party as assets available for distribution under s.24. Rimer LJ said this was wrong and restated the principle in Salomon that: “…a separate corporate entity of the company is a fact of legal life that all courts are required to recognise and respect, whatever jurisdiction they are exercising. It is not open to a court, simply because it regards it as just and convenient to disregard such separate identity and to appropriate the assets of a company.” 5 At first instance, Moylan J had declined to pierce the corporate veil because there was no evidence of a ‘relevant impropriety’. The Supreme Court held that this was correct. Sumption SCJ referred to the fact that in Prest, the legal interest in the companies had been vested in the companies long before the marriage broke up and that there was no evidence that this was done in order that Mr Prest could duck his financial obligations to his wife. In fact Moylan J found that Mr Prest’s purpose in setting up the structure was “wealth protection” rather than divorce proofing. Therefore, the principle in Salomon remained good. The Supreme Court allowed Mrs Prest’s appeal on the basis that the properties in question were beneficially owned by Mr Prest. Irrespective of the fact that the properties were legally (ie ostensibly) owned by various companies, they were in fact held on trust for Mr Prest. However to ward off a flood, the Supreme Court cautioned that whether assets vested in a company are beneficially owned by its controller is a highly fact

specific issue. In this case, Mrs Prest gave evidence of her belief that Mr Prest was the beneficial owner of the relevant properties. For example, Mr Prest bought the family home in the name of a company that had no resources at the time and he bought it with his own money. Mr Prest failed to file any evidence on the issue. The law presumes that the property was held on trust for the person who paid for it. The same principle applied to seven investment properties. Although the evidence that Mr Prest had paid for them himself was far from conclusive, he made no attempt to rebut it and “the court is entitled to draw all proper inferences against a party whose conduct shows that he has something to hide,” Sumption SCJ concluded. Sumption SCJ echoed Moylan J views when he referred to Mr Prest’s conduct in the proceedings as having been characterised by “persistent obstruction and mendacity” 6. Mr Prest was not a party to the appeal and the companies had been joined to the proceedings only because they were alleged to be trustees for Mr Prest of the shareholdings and the properties and because orders were being sought for their transfer to Mrs Prest. The companies themselves failed to file a defence or comply with orders for disclosure. Sumption SCJ concluded “judges exercising family jurisdiction are entitled to draw on their experience and to take notice of the inherent probabilities when deciding what an uncommunicative husband is likely to be concealing”. 7 The judgments of The Supreme Court are good news for family lawyers ensuring that a judge’s fair award is satisfied, not flouted. However the outcome might have been very different if the properties were acquired at a time when the companies had their own resources to do so and were property investment companies acting in the course of business (and offshore). But does anyone think Mr Prest should have got away with it?

Issue 7

Summer 2013

Incorporated Limited Partnership and Separate Limited Partnerships key features When establishing an investment vehicle, it is important to consider which type of vehicle will be most suited to the type of investment, its tax treatment, and the attractiveness or comfort of the proposed investment vehicle to the investors. Carl McConnell Associate Solicitor Hawksford T: +44 (0) 1534 740262 E: carl.mcconnell@hawksford.com

“An SLP or ILP will have a wider scope of business than the Scottish limited partnership, which requires a purpose of “carrying on business with a view to profit” as opposed to SLPs and ILPs, which can be established for any lawful purpose.”

With the introduction of the Separate Limited Partnership (“SLP”) and Incorporated Limited Partnership (“ILP”) Jersey today has one of the widest choices of legal entities, with the following forms of vehicles available for investment structures: Unit Trust; Company; Protected cell company; Incorporated cell company; Limited Liability Partnership; Limited Partnership; Separate Limited Partnership; and Incorporated Limited Partnership. The SLP and ILP are variances of the standard Jersey limited partnership, which has been in existence since 1994. However, they differ in that each of them has their own ‘legal personality’, which is similar to the Scottish limited partnership format but without the additional accounting and disclosure burdens that come with it. Neither an SLP nor an ILP will be classed as a ‘qualifying partnership’ under The Partnerships (Accounts) Regulations 2010. Furthermore, an SLP or ILP will have a wider scope of business than the Scottish limited partnership, which requires a purpose of “carrying on business with a view to profit” as opposed to SLPs and ILPs, which can be established for any lawful purpose.

Key features of an SLP The law governing SLPs is closely modelled on the Limited Partnerships (Jersey) Law 1994 (“LP Law”), save for the following key features: An SLP will have separate legal personality and will therefore be a separate legal entity from its members; An SLP will be unincorporated (i.e. it will not be a body corporate); The name of an SLP must end with the words “Separate Limited Partnership” or either the abbreviations “S.L.P.” and “SLP”; An SLP will still require a general partner. The general partner would still retain unlimited liability for the debts of the SLP, whilst the limited partners would retain the benefit of limited liability (subject to largely the same conditions as set out in the LP Law);

The general partner may act on behalf of the SLP (similar to a limited partnership) or transact in the name of the SLP if preferred; and All property of an SLP shall be held for the benefit of the partners in accordance with the partnership agreement.

Key features of an ILP The principal features of the ILP regime are summarised below: An ILP will also have separate legal personality, however as its name suggests, an ILP will be incorporated (i.e. a body corporate) meaning it will own property in its own name, contract in its own name and will be able to sue and be sued in its own name; The name of an ILP must end with the words “Incorporated Limited Partnership” or any of the abbreviations “I.L.P.”, “ILP”, “Inc. L.P.” and “Inc LP”; An ILP will have perpetual succession; Due to its incorporated status, the dissolution of an ILP will require a more formal process than the dissolution of an unincorporated limited partnership. The statutory winding up and dissolution provisions will be governed under separate regulations based on the equivalent Jersey company law provisions; The general partner of an ILP acts as an agent of the limited partnership (rather than as a partner of the partnership) and owes statutory fiduciary duties to the ILP similar to those a director owes to a Jersey company - for example, a general partner of an ILP is required to act honestly and in good faith with a view

to the best interests of the ILP. The general partner also owes the usual duties directly to the limited partners of the ILP; and The general partner of an ILP is only responsible for the debts and other obligations/liabilities of the ILP after the partnership itself has defaulted. This is in contrast to the position in respect of general partners of LPs and SLPs, which have unconditional unlimited personal liability for the debts and other obligations/liabilities of the partnership (although in practice the unlimited liability of the general partner is usually dealt using a company as the general partner). An advantage of being a body corporate is that most jurisdictions generally accept that a body corporate is governed by the law of the jurisdiction in which it is incorporated. This might be particularly important if there were perceived to be any risk that a limited partner might otherwise be treated by a non-Jersey court as having unlimited liability.

Taxation SLPs and ILPs will be treated in the same manner as ordinary Jersey limited partnerships for Jersey tax purposes, and will therefore not be assessable to Jersey tax. It is anticipated that SLPs and ILPs will be tax transparent for the purposes of income and capital gains tax, meaning that the limited partners are taxed in their jurisdiction on the value of their interests in the partnership. The tax treatment of Jersey limited partnerships, including SLPs and ILPs, and their partners may differ in other jurisdictions, so specific advice is recommended. For more information on ILPs and SLPs, please get in touch.

“SLPs and ILPs will be treated in the same manner as ordinary Jersey limited partnerships for Jersey tax purposes, and will therefore not be assessable to Jersey tax.”

Issue 7

Summer 2013

The Jersey Foundation What makes them special; their use in practice and what sets them apart from other jurisdictions.

A Jersey foundation can be tailored to the founder’s precise wishes, giving the founder the greatest possible freedom of choice. This flexibility requires a clear understanding by planners of their client’s requirements to design a structure that is robust and allows for efficient administration, consistent with good management and regulatory obligations. Jersey foundations have a legal and regulatory background of checks and balances, internal and external supervision, freedom under the Foundations (Jersey) Law 2009 backed up by proper regulation and stability. A Jersey foundation may have perpetual existence and a distinguishing feature is flexibility as to the precise bespoke terms of each foundation. Jersey imposes only certain core requirements on the content of the foundation’s regulations, but leaves it to the founder to decide the detail of regulations and the exercise of power. A Jersey foundation has no owners. That in itself gives it certain advantages. Broadly, it can exercise all the functions of an incorporated body including commercial trading activities, provided they are incidental to the attainment of its objects. Unlike a trust, there are no beneficiaries who have an interest in the foundation’s assets or are owed any fiduciary duties.

Except perhaps in relation to some areas of specialist UK tax planning, there is no obvious limit to the uses of a Jersey foundation. They can be operated like a trust, but with the advantage of their own legal personality. Generally, they can be used in most situations where a trust or company might otherwise be set up. In some cases a foundation may be preferred – for example, as the owner of shares in a private trust company in place of a non-charitable purpose trust, since there is then no possible attack on the validity of the purpose. Foundations may be more attractive than trusts when holding businesses or non-income producing assets, or assets that are depreciating or high risk, because there are no duties to beneficiaries and because there is no requirement to diversify. Care is needed in the governance arrangements. The council of every Jersey foundation must have a “qualified member” (i.e. regulated under the Financial Services (Jersey) Law 1998) whose business address in Jersey becomes that of the foundation. The application of Jersey’s Anti-Money Laundering Regulations is ensured by the qualified member requirement and because only a qualified person may incorporate a foundation. Additionally, every Jersey foundation must

have a guardian to oversee the carrying out of the council’s functions and who can call the council to account. As such, the guardian’s role is similar to the enforcer of a purpose trust, but guardians can also have a much wider, quasi-executive role. The founder too can have executive power. He or she can have such rights (if any) over the foundation and its assets as are provided in its charter and regulations, which can allow those rights to be assigned to other persons or passed by Will or Codicil. The founder can be both a member of the council and its guardian, such that a very high degree of control is possible, if that is appropriate, given local tax and other legal issues. The guardian can be a council member, but only if he or she is also a founder or the qualified member. Because powers can be reserved to the guardian, he can have an executive role in ensuring that the council carries out the foundation’s objectives. Given that the council is an executive body, rather like the directors of a company, made up of one or more members and that apart from the qualified member rule, there is total flexibility as to the residency of the membership and organisation of the council. There is also a clear need

for care in the design of governance and administrative arrangements as is apparent from the case of Dalemont Limited v Senatorov and others. The Jersey qualified member should not allow himself to be an isolated minority with no control over the decisions of other council members, limited or no access to information and no direct control over the foundation’s assets. More generally, the council is responsible for administering the assets of the foundation and for carrying out its objects, acting in accordance with the charter and regulations. The council members – which may simply be one or more – are required to act honestly and in good faith with a view to the best interests of the foundation and to exercise the care, diligence and skill of reasonably prudent persons in similar circumstance. A special feature of the Jersey foundation is that it can be established solely for a particular purpose and need not have any beneficiaries at all. Where there are beneficiaries, subject to contrary provisions in the charter or regulations, they have no interest in the assets of the foundation, nor any rights to any information. They are not owed any fiduciary or similar duty by the foundation, the guardian or by the council. Jersey foundations are of course attractive to Middle Eastern, Asian and continental European clients for whom the concept of a trust is less familiar, but they are also of increasing interest to clients from a common law background. They are perhaps simpler and more easily understood than trusts. Also, a Jersey foundation, as a distinct legal entity and able to exist indefinitely, is attractive to wealthy clients and for dynastic structures. There are obvious attractions in wealth management, particularly as extensive rights can be kept by the founder and, if there are any beneficiaries, their rights can be much more restricted than with trusts. Foundations are ideal vehicles for succession or estate planning to hold shares in private trust companies (or in place of them), as true orphan structures with no shareholders, no beneficiaries, and no need for any assets at the start. They can be set up for both charitable and non-charitable purposes, such that Jersey has become a prime jurisdiction for philanthropic giving through charitable and non-charitable foundations. Guernsey has taken a different approach to beneficiaries, distinguishing between enfranchised and disenfranchised beneficiaries – those with rights to information and those without rights,

and with provision for the movement of beneficiaries between these classes.

prevails and overrides forced heirship rules of other jurisdictions.

This may appeal to clients wishing to incorporate distinct beneficial class rights, but the Jersey foundation allows flexibility to give beneficiaries different rights under the private regulations, or to create different classes of beneficiaries. The founder’s wishes can be followed without being restricted by the governing law.

Similarly to Jersey, the council of a Liechtenstein foundation must include one person in Liechtenstein who is resident there and who has the capability to administer the foundation. In a Jersey foundation its administration will be in Jersey through the qualified member. This may be contrasted with Panama whose foundations can be administered anywhere.

In Guernsey there is no requirement for a fiduciary licence holder to be on the council. This may be attractive to entrepreneurs using a foundation wishing to hold an operating company, without external interference. However, if a Guernsey fiduciary is neither on the council nor a guardian, the foundation must appoint a “Resident Agent” who must be resident in Guernsey and who must hold a Guernsey fiduciary licence. The Registered Agent will have record keeping and AML compliance obligations and would presumably often, therefore, require to be on the council. Other distinctions between the Jersey and Guernsey foundations are that Guernsey’s reserved powers are limited to enabling the founder to amend, revoke, vary and terminate the foundation and are only available during the founder’s lifetime or, where the founder is an entity, for 50 years. Nevertheless, the founder could still have control because Guernsey allows the council to delegate its wider powers to the founder – presumably ensuring that the extent of any delegation was appropriate and that the extent of control by the founder is not excessive in case there is any danger of the corporate veil being pierced. Unlike a Jersey foundation where no fiduciary duties are owed to beneficiaries, in a Guernsey foundation the council and registered agent owe a duty to the foundation and the guardian owes duties to the founder and to any disenfranchised beneficiaries.

In conclusion The Jersey foundation may not be the perfect answer. There is some controversy over the rights or otherwise of beneficiaries and over the extensive ability for powers to be reserved to the founder. It may even be considered by some to be too radical, and arguably it lacks the infinite flexibility and precision of which a welldrawn trust is capable. However, the Jersey foundation is an entity of great flexibility, which complements and offers an alternative to trusts and companies and has a valuable role to play in its own right. It represents an addition to Jersey’s “tool box” of entities for wealth planning and commercial structuring and enhances Jersey’s existing services of incorporating and managing foundations elsewhere, whilst through express provision attracting the migration of such entities to Jersey. The Jersey foundation offers a wider choice to clients from both civil and common law backgrounds, through a bespoke vehicle tailored to the founder’s precise needs, offering privacy, discretion and with the founder having control over the allocation of powers. All of this being backed by the strength of Jersey’s reputation of stability, excellence and expertise.

The Guernsey guardian’s role really is more akin to the enforcer of a purpose trust since the guardian is only required where there is a purpose in respect of which there are no beneficiaries, or where there are disenfranchised beneficiaries. In respect of other jurisdictions such as Liechtenstein, the Bahamas and Panama, there are again differences between the rights or otherwise of beneficiaries and there may also be distinctions in respect of forced heirship as between say Liechtenstein and Jersey – in the case of Jersey foundations, Jersey Law expressly

Julian Hayden Director Hawksford T: +44 (0) 1534 740140 E: julian.hayden@hawksford.com

Issue 7

Summer 2013

What are the differing attitudes among voters and parties to the Swiss banking secrecy? Swiss banking secrecy is one of the most discussed topics in recent months and years, both in and outside of Switzerland. Banking secrecy was debated in the June session of parliament and covered the topic of how to treat banking secrecy within Switzerland, and towards other countries, with the new financial market strategy proposed by the Federal Council on 14th June being the big topic. The parties, their individual members and the Swiss Banking Association (“SBA”) reacted differently to the new financial market strategy. The Banking Act, including the stipulated banking secrecy, came into force on 1st March 1935. Its codification was the formal confirmation of the already existing legal customs by the Swiss Banks to preserve their clients’ privacy. Although we speak traditionally about banking secrecy, the duty of discretion is not intended to protect the bank, but the client. This is consistent with privacy in other areas of professional activities, such as doctors and lawyers. Banking secrecy is not an absolute right of the customer. There is a duty of banks to disclose information based on certain national and international provisions. The discussion about banking secrecy is today related with tax matters and automatic information exchange (“AIE”). Switzerland has strategically bilateral agreements to solve tax matters and to maintain banking secrecy, like the agreement on the taxation of savings income with the European Union and withholding tax agreements with United Kingdom and Austria. The Federal Council stated on 14th June 2013 that it is prepared to contribute actively, within the scope of the OECD, to develop a global standard for the AIE to ensure tax compliance with the principle of speciality and data protection. If such a global standard is introduced, the Federal Council will propose incorporating it into Swiss Law. Standardised withholding tax agreements, with the exchange of information upon request, remain as an

alternative with countries which do not introduce the global standard.

of Swiss residents and to add this financial privacy in the federal constitution.

The Liberals (‘FDP’) support banking secrecy. Bilateral tax withholding agreements, as concluded with the UK and Austria, are the most efficient way to settle tax matters and maintain banking secrecy. FDP emphasises the importance to achieve first a global standard in the AIE in all the major financial centres.

SBA states that Swiss banks are keen to negotiate proactively with the EU on expanding the taxation of savings income and a type of information exchange. This could include automatic information exchange, subject to certain conditions. Switzerland must attempt parallel activity at OECD level to ensure a global standard for AIE.

The Swiss People’s Party (“SVP”) will maintain banking secrecy. SVP considers the right of privacy as imminently important. The statement of the middle-class party (“BDP”), which was founded five years ago from former members of the SVP, follows in the main points the announcement of the Federal Council for the proposed direction in the financial market strategy The Christian Party (“CVP”) will maintain the standard of Swiss banking secrecy for Swiss customers of banks independent from the negotiations with foreign countries. An international standard for AIE is necessary and important for the CVP. Members of the CVP suggested a task force financial market is appointed for Switzerland, which consists of members and specialists from the industry. The Social Party (“SP”) supports the strategy to actively negotiate with the AIE and wants to bring forward the negotiations. The party considers the statement of the Federal Council as a milestone in the financial market strategy. The Green Party (“Grüne”) follows the statement of the SP to negotiate actively towards an AIE, bearing in mind the data protection law. A committee comprising individual members of SVP, FDP, CVP and the Ticino League (“Lega”) has launched an initiative this June to defend the protection of privacy. The committee has a deadline of 4th December 2014 to collect 100,000 signatures to put the proposal to a national vote. The main purpose of this initiative is to protect the financial privacy

As the SBA states, legal certainty for clients, bank and bank employees, and the facilitation of growth and value creation to secure and increase the employment in Switzerland, are main factors from the industry seeking political support to bring the financial market strategy forward. Even though parties and their individual members have different opinions on how to implement the financial market strategy, there is a majority view that Switzerland needs to negotiate proactively. Due to the political system in Switzerland, with its direct democracy, changes to Swiss federal law can be subject to a popular vote. Every Swiss voter will be responsible to contribute with his vote for a sustainable financial market strategy.

Marc Renggli Senior Lawyer Hawksford LSS GmbH T: +43 (0) 41 500 3874 E: marc.renggli@hawksford.ch

The bigger picture The world is seeing changes at a speed that many would never have predicted. That brings benefits but it also creates challenges. Governments have a mountain to climb to balance the needs and wants of their citizens with the cost of providing services. That mountain is set against a backdrop of economic uncertainty and constant talk of continued recession. We seem to think that banking needs to be heavily regulated, yet on some measurements, it’s the first or second most regulated industry in the UK. I don’t think it would be wrong to predict that we are destined to repeat the mistakes of 2008 with even worse results. Irrespective of the present economic difficulties, although compounded by them, there has, in recent years, been a shift in power from west to east and I don’t see that changing. For all the many issues they have faced, China and India recognise that the state should only spend around a quarter of GDP, which in part explains the growth they have experienced. In the West, it’s typical for public spending to be around 45% of GDP and there can be little doubt that the future will belong to those countries who keep government spending at around 25%. We are on the cusp of a massive transfer of power from west to east and it’s possible that in just 20 years’ time, China will have replaced the USA at the top. In order to reduce spending, the West may need to learn lessons from the BRIC countries (Brazil, Russia, India and China) and rapidly change the way in which the state provides its services, in particular health and education. Government will become a facilitator rather than a provider, it won’t employ professionals but direct people to private providers. By 2032, it will seem inconceivable to many people that we ever provided services the way we do at the moment. It’s likely that health and education services will be dispersed over a number of locations. Rather than going to one building for education, there will be small centres of excellence and it will be for parents to take control over which subjects are studied and for how long. It will be a pick and mix menu and it’s likely that it will include elements of home schooling as this is predicted to become more popular. It’s also possible that schools won’t close

their doors in the evenings or for long stretches over the summer, but will provide a more rounded educational service to communities not merely to enrolled students.

and the need to stand on their own two feet. A society in which truly vast swathes of people qualify for some form of state support or another will be a thing of the past.

Any thoughts of the future can’t ignore the impact that technology has had on society. We are now a 24/7 society, able to communicate with anyone, anywhere in the world, at any time of the day or night. The 9am – 5pm job is a dying concept and in order to manage the work/life balance, employers and employees will become increasingly flexible.

As already predicted with health and education, the vast majority of adults will need to be more self-reliant and have greater control of their own destinies.

This again will impact education because if hours for adults change, then it’s inevitable that the hours for the children will as well. Schools will be become more like companies, open for business throughout the year and judged and remunerated based on their results.

Mark Littlewood Director General Institure of Economic Affairs

A shift towards individuals having more responsibility has already started to happen in health. We now have drop-in centres where people go of their own volition rather than being told to. Health professionals will also have different challenges to face. I predict that there will be a massive culture shift with the use of recreational drugs. That shift will take us out of our current comfort zone. By 2032, nearly all recreational drugs will be legal and available to purchase on the high street. Modest drug use will become the norm and it will partly replace drinking alcohol. By 2032, the distribution of wealth will be even more polarised. The gap between the wealthy and the poor has been steadily growing wider in the West since the 1960s and that will continue. The middle classes will have more opportunities and more people will choose how much time they spend in different parts of the world without obviously calling anywhere home. But what does that mean for those on lower incomes, those who are dependent on welfare? In 20 years, GDP will have doubled so they will still be provided for but I do predict a move towards greater self-reliance

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MAGIC CIRCLE AWARDS 2013

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2012

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