Event report: Jersey share schemes and trustees seminar 2017

Extracted from newspad June 2017

Opening this year’s share schemes and trustees seminar – organised by the Esop Centre and the Society of Trust and Estate Practitioners (STEP) – in Jersey on May 12, Centre chairman Malcolm Hurlston highlighted some of the current opportunities for the employee share ownership sector in the British Isles. He told the audience of around 40 trustees that the Employee Ownership Trust (EOT) is proving to be an extremely effective mechanism for convincing business owners to sell to their employees. Trustees had been reluctant to embrace the EOT, however, given the additional responsibilities and liabilities involved in being a majority shareholder of a company. Mr Hurlston argued that Channel Islands trustees should address these concerns and plug the EOT gap.

Turning to the UK General Election, he explained that the Centre was putting all-employee share ownership centre stage. As soon as she became Prime Minister, it was clear that Theresa May liked to runs things from Number 10. History told us that when this happens, as under Margaret Thatcher and Gordon Brown, employee share ownership — which depends on different government departments being encouraged from Number 10 to work together — thrived. While Brexit was consuming much of the government’s time and energy, low pay and income inequality would both be major issues for the voters who could turn a Tory victory into a landslide: commitments to spread the wages of capital was an obvious solution and probably one of the few subjects both Theresa May and Jeremy Corbyn could get behind.

Chris Lowe, of KPMG, spoke about the Common Reporting Standard (CRS). More than 100 jurisdictions – Jersey among them – had committed to the early implementation of the CRS, but each taxation authority was unique in how it had approached the OECD’s initiative. At present, there was no clear guidance on the treatment of Employee Benefit Trusts and it was possible that Jersey might apply the equivalent position as the UK. CRS was just one way the outlook had changed in recent years.

Helen Hatton of BDO Sator expanded on this theme, highlighting some of the major concerns for the industry based on discussions with seven ceos of Jersey trust companies. She found that while matters like FATCA, the CRS and the General Anti-Abuse Rule were of course important, the ceos were less interested in the details and more concerned about what they actually mean in terms of changing societal attitudes towards tax avoidance and the use of ‘offshore’ trusts.

A panel discussion featuring Colin Powell CBE, of the States of Jersey and Rosemary Marr of STEP developed the topics of the previous speakers. Mr Powell agreed with Chris Lowe’s assessment that Jersey would probably produce CRS guidance similar to the UK, since the OECD had not challenged it. He concurred with Helen Hatton’s argument that companies actively promoting trusts as tax avoidance vehicles were damaging to Jersey and such behaviour could lead to the island being blacklisted by the EU. He told delegates that all those who argue trusts were bad usually didn’t understand their functions – for protection and succession and nothing to do with tax.

After the break, Paul Malin from Haines Watts guided delegates through how to handle tax problems with HMRC. He explained that approaching the Revenue was not always for the faint hearted since it could get worse before it got better, but it was always prudent to talk.

Graham Muir of the newly merged firm CMS Cameron McKenna Nabarro Olswang – now the sixth biggest in the world and trading as CMS – pinpointed the key issues in employee share ownership, highlighting HMRC’s resources and focus as the main issue affecting share schemes at present. This included the transition to self-certification, the non-statutory clearance procedure, informal clearances, compliance and changes to valuation services.

Pett Franklin’s Stephen Woodhouse explained the use of share-based trusts for private companies, including EOTs in the context of succession issues. He concluded that succession is likely to become more of an issue, particularly for smaller companies and partnerships with economic constraints on investment by individuals. He predicted that the use of trusts – especially EOTs – was likely to grow and could become a significant alternative form of business ownership.

Finally, David Craddock of David Craddock Consultancy Services provided a case study in which an employee share scheme was influential in a management buyout, pointing out that the principles behind this went back to 1956 when Louis Kelso devised a trust model to help Peninsula News employees who, despite their willingness to buy the company, did not have the cash to enter into the transaction.

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