Keep it simple, says KPMG

THE success of the Guernsey funds market in future could depend on the island maintaining its current tax regime. There have been calls to simplify it for UK-based ones to help them compete more effectively against the offshore variety.

The UK Investment Management Association says the UK is losing out to places such as Luxembourg and Dublin because the British tax system is so complex.

The IMA commissioned a report from KPMG which found that fund assets housed in Luxembourg grew 10 times as quickly as in the UK and those domiciled in Dublin by twice as much.

KPMG Guernsey chairman Jonathan Hooley said it was vital that Guernsey maintained its current regime.

'We need a stable fiscal environment,' he said.

'When you look at structuring a fund, you look for tax neutrality, where another layer of taxation is not imposed.

'Other jurisdictions have done well at the cost of the UK, so the IMA is saying the UK should get rid of the complications.'

The KPMG report said managers blamed the increasing complexity of the tax regime on UK-based funds for dissuading fund managers from housing them there. The position of UK-based funds will become more uncertain as offshore funds become more widely accepted.

The report has suggested that the growing market in alternative investment products such as hedge funds gives the government a chance to reverse the position.

Mr Hooley said even indirect tax increases or new taxes could have an impact here.

'To some extent it includes indirect taxes. VAT can impose a tax on a fund. Guernsey is considering a goods and services tax, but Guernsey doesn't have to have a new-style GST. That's the main point people need to appreciate.'