The Isle of Man – EU non-compliant?

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I noted the following comment in the FT in a discussion on tax havens:

The EU staged a crackdown on “harmful tax practices”, including un-equal treatment of residents and non-residents.

“It was seen as harmful to ring-fence the local tax infrastructure from that which applied to non-residents,” says Greg Jones, KPMG tax director on the Isle of Man. “It was seen as poaching.”

The IoM responded by abolishing the concept of tax-exempt companies and introduced zero per cent corporation tax.

Oh no it didn’t Mr Jones. That’s exactly what it did not do. It just moved its ring fence.

The Isle of Man issued a press release on whether it complied with the Code on 4 January 2006. It said:

Treasury recognises that many people in business and the professions, locally and internationally, need guidance regarding the effect of the Isle of Man’s commitment under the European Union Code of Conduct for Business Taxation to remove certain aspects of our taxation system for companies. The Assessor of Income Tax will shortly issue a more detailed guidance note.

He never has. There’s good reason. The Isle of Man does not as a matter of fact comply with the EU Code of Conduct on Business Taxation. I explained why in 2005, and they ignored me. The details have changed very slightly since I wrote this presentation. The substance has not.

And now we’re in 2007. And I am aware that the EU has by now ruled on the IoM’s compliance with the Code. Watch out for changes in legislation soon. Substantial changes will be necessary.

I did ask the Isle of Man about whether they had passed the compliance review, by the way. They said:

As you are aware there is an ongoing internal process within the European Union and it would not be appropriate to comment at this stage.

I think we can safely assume that’s a No then. Because that, I have reason to believe, is the case.

PS 16.00 16-10-07. I have been asked by sources in the Isle of Man to say two things. The first is that in principle the EU has said their 0/10 tax scheme could be Code compliant. That is true, I agree.

The second is to point out that the Finance Minister said the following in his Budget speech this year:

I have asked the Assessor to review the operation of the Distributable Profits Charge. Honourable Members will recall that this measure was designed to limit the potential for people living in the Isle of Man to defer the payment of tax on their income by lodging it in a company taxed at the zero rate of tax. After consultation, Treasury decided that in cases where the charge was triggered, it would be settled by the company rather than the shareholders. Although I am content that the Distributable Profits Charge system is appropriate and fair, I am aware of concerns expressed about it. As such, it is only right that we take a careful look again at the Distributable Profits Charge and deal with any resulting issues.

I’ll take those who have expressed as concern as being the EU. Which seems to confirm exactly what I said above.