The Isle of Man - Philanthropy Reborn

November 2008

Generosity is fashionable. The remarkable outpouring of donations from Britain and other rich nations after the tsunami catastrophe in South-east Asia in the final days of 2004 was just one very public example of a new attitude of compassion and generosity that seems to have developed in much of the wealthy developed world in recent years, Time magazine's choice of Bill and Melinda Gates along with Bono as the Persons of the Year in 2005 tuned into the mood of the times.

Time magazine has commented "giving away money has never been so fashionable among the rich and famous", The new fervor for giving is not confined to North America. In India the wealthy bosses of Infosys, Wipro and Dr. Reddy's are joining more established business philanthropists such as the Tata, Birla and Bajas famiLies. In Russia, the oil magnate Roman Abramovich has given away millions to improve living conditions in Chukotka, where he is governor. Nor is Europe left out. In Germany, for example, the number of charitable foundations has trebled in the last ten years.

Most notably, in June 2006 Warren Buffett, the world's second richest man, announced that he would give $31 billion of his hard-earned fortune to the Bill and Melinda Gates Foundation, effectively doubling its size.

America has long nurtured the tradition of ‘giving back'. Most of the giving in the past has gone to religious organizations, to endowing scholarships or otherwise supporting the old school or college, or to funding the new wing of a hospital or museum collection.

Time said of the year 2005: It was "the year that redefined generosity, when America stirred itself awake from the dreamy indifference with which the world's poor had always been treated".

Britain has always lagged behind in public generosity, donating just £226 per head per annum compared with America's £600. In 2003 the British, as individuals, gave £7.2 billion to charity, about the same as they spent on gambling that year, and just five per cent of the givers accounted for more than half of it. Legacies and charitable trusts added another £3 billion to the total. The reasons for Britain's relative parsimony are various. For example, in the past 100 years or so, there have been fewer seriously rich people than in the previous century, and the British tax regime has not historically looked as favourably on charitable gifts as its American counterpart. Thus, whereas much of America's charitable giving is planned, Britons contribute most of theirs through small donations, often collected on the street. Perhaps, too, the rise of the welfare state in Europe encouraged people to leave it to the state to look after the needs that weren't catered for by the market. "I pay my taxes, don't I?" one tycoon responded when asked why he wasn't being more generous in his giving.

There are now, however, signs of change in Britain. Philip Beresford has added a ‘Giving List' to his Sunday Times ‘Rich List'. He has also noted that whereas in 1989 75% of the giving came from inherited wealth and only 25% was self-made, the position has now reversed, with 75% coming from people who have made the money themselves. This was supported by the survey Why Rich People Give that Theresa Lloyd carried out for Philanthropy UK. She reported that 70% of her interviewees were self-made. Entrepreneurial Britain has been born again and is becoming generous. But these givers are different, they want to be involved, to initiate, not just respond.

The new givers include the Google duo, Sergey Brin and Larry Page, who have expressed the hope that their philanthropic arm will one day eclipse Google itself in overall world impact by ambitiously applying innovation and significant resources to the largest of the world's problems'. In Britain, Bob Geldof and Jamie Oliver have caught the public imagination.

In recognition of this new trend the Isle of Man authorities have followed proposals made by West Corporation and the law firm Gough & Co., and introduced new regulations to accommodate privately funded philanthropic arrangements in the nature of the ‘Foundations" now popular in the United States.

The Isle of Man is already an attractive location for the establishment of charities. It is well regulated, with a good professional and financial infrastructure, It is now possible to go a step further as a result of this initiative.

As in other jurisdictions a perceived disadvantage for privately funded philanthropic arrangements has been the extent of the regulation attached to charitable status. In the Isle of Man that regulation included the need to file publicly available accounts and the ability of the Isle of Man Attorney General to review a charity's investments.

Bermuda has already addressed the regulatory issue by simply stating that charities who do not receive their funds from members of the public do not need to be regulated. However, the Isle of Man has taken a more structured approach because:

  • those establishing and dealing with the charity want to be assured that the charity and those managing it are in fact subject to a sensible level of regulation;
  • the international bodies such as the OECD and the IMF are bound eventually to take exception to regimes which abandon regulation altogether because they are concerned that charities could be widely misused as conduits for terrorist funding;

The solution in the IsLe of Man is a new regime that approves the charity and ensures that the legitimate concerns of international bodies are met without for example requiring the filing of publicly available accounts or control regarding investments or other public interference.

For an arrangement to be approved under the new regime, it must meet the following key tests.

  1. The initial funds must originate from named persons and information sufficient to identify the donor or donors must be provided to the Isle of Man Attorney General.
  2. The name of the institution must be approved by the Attorney General, as must the governing instrument of the charitable institution.
  3. In broad terms that governing instrument must incorporate the following elements:
    1. (a) No further ftinds can be solicited or received from any person other than the original donor, and certain persons connected with the donor.
    2. (b) The majority of the trustees or directors must be resident in the Isle of Man and all meetings of the trustees, or directors must take place in the Isle of Man.
    3. (c) One of the trustees or directors must be appointed as the ‘4Responsible Person" and must be authorised to accept service of notices or other documents. The Responsible Person has to be regulated under the Isle of Man Corporate and Trust Service Provider licensing regime.
    4. (d) The Isle of Man Attorney General must be notLfied of the appointments of all trustees or directors and of the Responsible Person within fourteen days of such appointments.
    5. (e) Accounts must be made up and audited at least once in each calendar year.
    6. (f) Within six months of the end of each financial year, a copy of the accounts and of the auditor's report must be sent to the Attorney General, together with a certificate from the Responsible Person that no funds have been received except in compliance with the provisions of the governing instrument.
    7. (g) Certain amendments require the prior approval of the Attorney General.

The new regime will be attractive to people who want an adequate but not excessive or prescriptive level of external regulation but who also want the charity or foundation to have the credibility and security that goes with some level of external regulation.

Why in the Isle of Man?

  • Moderate regulation will dissuade cynical enforcement agencies from looking at it with suspicion. There will be a temptation to investigate foundations set up in jurisdictions with no regulation.
  • There is an established and solid judicial system. Disputes can be resolved.
  • The Isle of Man is close to the UK, with good air and sea links.
  • State of the art communications exist.
  • There is sound democratic government and the Executive is alive to new and progressive ideas.
  • Professional standards are high.
  • The Isle of Man has years of global dealing experience.

The new Isle of Man regime will be particularly attractive to individuals who do not need relief from estate taxation in respect of the funds passing to the charity. This may be where the estate of the individual or the trust that will fund the charity is in any case outside the scope of estate taxation.

The new culture which embraces the philanthropic ambitions of many of the world's wealthiest people can be accommodated in the Isle of Man, which is keen to take an active and responsible role in facilitating and promoting these worthy ambitions.

Article posted: 04/11/2008