Tax Research UK

BBC News - UK budget cuts ‘hurting Isle of Man’.

The BBC reports:

The Isle of Man government feels bruised, as if it has been kicked around unthinkingly by Whitehall.

“The Isle of Man is part of the British economy,” the Chief Minister Tony Brown tells me defiantly.

“We might not be part of the United Kingdom, but a considerable amount of the money we earn and spend is spent via the UK.

“We are a benefit to the UK, not a drain.”

This is absoluttely absurd. Tax abuses sponsored by the Isle of Man were costing the UK at least £1.5 billion a  year until the VAT subsidy was withdrawn. That means they are still having impact way beyond the total government income in the Isle of Man.

If the Isle of Man wants to stop hurting stop being a tax haven. The option is there’s to take. But when you set out to undermine the government of another state - and that is what the Isle of Man conciously set out to do - don’t expect any sympathy in return.

Richard Murphy Isle of Man

FSC - Statistics Bulletin - Financial Supervision Commission.

Cash on deposit in the  Isle of Man fell for the 4th quarter running to 31 December 2009.

Could that have something to do with the campaign saying “don’t bank on the Isle of Man“?

Richard Murphy Isle of Man

FT.com / UK - Isle of Man plans tax rises and spending cuts.

The FT reports:

The Isle of Man on Tuesday proposed a painful mix of tax rises and spending cuts, including a multi-year public sector pay freeze, in an austerity budget triggered after the UK clawed back £140m in annual tax receipts.

As it noted:

Allan Bell, treasury minister of the tiny offshore financial centre, told its parliament that “the world has changed” and that its low-tax, high welfare model needed revision.

So that leaves£91 million to find then. But as the FT notes:

Higher taxes and charges would raise £20m in 2010-11 with a further £7m required the year after. Some £15m would be taken from the £300m reserve fund.

So that’s £27 million of extra tax and the Isle of Man piggy bank can chip in £15 million a year for twenty years. That’s £42 million of the gap then.

Which leaves £49 million to find then. There’s not a hint about where that is coming from. But the FT does say:

The measures are in marked contrast to the UK’s approach of continued borrowing: the Manx constitution demands a balanced budget.

The trouble is - it very obviously is not balanced. And the following comment does not square the circle:

Mr Bell said the island was embarking on a five-year programme to put public finances on a secure footing, which would use £114m of its reserves to cushion the transition. It has £1.28bn of invested reserves earmarked to cover pension and national insurance liabilities.

Are we to assume then the pensioners will pay? Someone has to if the equation is to be balanced after all. No, it looks like they’re falling back on the old assumption of growth:

The Manx model has embraced low taxation to suck in rich immigrants and entrepreneurs, combined with a sizeable welfare state to buy social peace and attract skilled workers from the UK. The island has enjoyed 26 years of economic growth since it became an offshore haven. Growth was estimated at 2.5 per cent in 2009, rising to 4.5 per cent in 2010. Unemployment in January was only 2.4 per cent, with 1,029 of the 80,000 population jobless.

Someone should remind Mr Bell of hos opening comment (well, it looks like I have as no doubt he will read this):

Allan Bell, treasury minister of the tiny offshore financial centre, told its parliament that “the world has changed”

Yes it has Mr Bell - and tax havens are history. And don’t blather on about the fact you’re not a tax haven - even your own press admitted that’s exactly what the world thinks you are last week, and for good reason. You can only con yourself by denying it.

The reality is this:

More than $500bn (€368bn) has left offshore accounts in Europe in the past two years as the wealthy repatriate funds in the face of a crackdown on tax havens and tougher economic conditions, according to research by Financial News.

The amount represents almost 25% of the estimated $2.1 trillion held in Europe’s offshore centres. Accounts in Switzerland and the Channel Islands have been hit by heavy outflows. However, Liechtenstein and San Marino suffered the biggest outflows.

That’s what’s happening and to assume that the Isle of Man will grow when its main business is in deep decline is just folly - a folly at the core of this budget that the FT, either through incompetence or wilful turning of a blind eye, failed to spot.

Richard Murphy Isle of Man

isleofman.com: news - Budget Sets Island on Road to Change.

There are full details of the Isle of Man budget in the link - the budget that is meant to begin addressing the loss of VAT revenue some there blame on me.

What’s the main measure? A raid on reserves.

And massive cuts in spending.

But no significant tax rises.

That’s all heads in the sand stuff: the reserves won’t last forever, the cuts will hurt - and education is not immune despite the note I made earlier today - and tax will have to be raised.

The crisis is being deferred. But it remains a crisis all the same. And one that it is clear Alan Bell, finance minister of the Isle of Man, has no idea how to tackle.

Richard Murphy Isle of Man

Schools ‘won’t be hit by cuts’ - Isle of Man Today .

The fantasy world of the Isle of Man marches on:

A NATIONAL Union of Teachers chief has told parents and teachers that she expects the Island’s schools to remain unaffected by the VAT crisis.

Following a two-day visit to the Island, NUT vice president Gill Goodswen said she would like to see education come before bureaucratic box-ticking.

Mrs Goodswen said she received an assurance from Education Minister Anne Craine that she ‘wouldn’t notice any difference to the Island’s education service at next year’s visit’ as a result of the VAT crisis — particularly in regards to redundancies or class sizes’.

Richard Murphy Isle of Man

UTV News - Co Tyrone tax scam couple face jail.

It’s reported:

A Co Tyrone husband and wife who operated Northern Ireland’s largest ever tax scam have been warned not to be “under any illusion” that they would not be jailed.

The warning came from Belfast Crown Court judge Mr Justice Hart on Friday after hearing that Gerry and Mary Small has cost the Tax and VAT man over £4.5m over a 17 year period.

The court was told that the couple siphoned off cash and cheques from their Grey Stone Builders supply business and salted the money away in undeclared off-shore bank accounts both in the Isle of Man and here.

Impossible, surely, for tax evaded funds to go to the Isle of Man? It’s too well regulated, I thought? Surely there’s some mistake in the reporting?

Richard Murphy Isle of Man, Tax evasion

Island must change its image as a ‘tax haven’ - Isle of Man Today .

No, I didn’t say that - the local finance sector did - which suggests they must be listening. Perhaps my contributing to their losing 24% of their state income has made them sit up and notice. Whatever, it’s reported:

WE need to change the international perception of the Isle of Man as a tax haven and build personal relationships if we are to secure future fiscal stability.

Read the rest of the report: the above apart they’re still clearly living out a fantasy that can’t last for long. Like Jersey, bankruptcy beckons.

Richard Murphy Isle of Man

High Court gives green light for offshore tax clawback - Times Online .

This is an important case for HM Revenue & Customs to win.

The core of the argument was that 2008 legislation that allowed the Revenue to backdate claims against an abusive form of offshore trust were illegal as an infringement of the human right to enjoy property.

The claimant took advantage of a scheme designed and marketed by Montpelier Tax Consultants (Isle of Man). The judge was told that he settled a trust in the Isle of Man, the “Robert Huitson Family Settlement”. The 2008 legislation means that Mr Huitson faces an overall tax demand in excess of £100,000 relating to the money he paid into the family trust back to 2001. As the Times notes:

Court documents reveal that 57 other scheme users say they cannot meet similar tax demands even if they sell all their assets, and another 29 could settle only by selling or remortgaging their family homes.

Several users also say that they face personal bankruptcy.

David Elvin, QC, appearing for Mr Huitson, said that the retrospective provisions of the 2008 Act affected 2,500 scheme users and involved £300 million.

He argued that the retrospective element of the legislation was incompatible with the “right to free enjoyment of property”, as protected by Article 1 of Protocol 1 of the European Convention of Human Rights.

However, the judge dismissed the challenge and ruled that HMRC had not acted unlawfully or disproportionately in backdating.

Several key issues come out. First, and as I have been arguing for a while, there is no right to enjoy property if the tax due when securing it has not been paid: the tow are indivisible.

Second, the Revenue do have the right to stop abuse even if theyu have to do so retrospectively.

Thirdly, and almost predictably it was one of the Crown Dependencies at the centre of this abuse, proving yet again they are secrecy jurisdictions.

Fourth, it is vital the Revenue do get cases like this in the press: I welcome the fact they have.

Fifth, the accountancy profession cannot be relied upon to uphold ethical standards or the rule of law. The Times notes:

Chas Roy-Chowdhury, of the Association of Chartered Certified Accountants said: “The case related to a particular trust arrangement but could have implications for similar offshore trust-based schemes.

“It is quite justified for the Government to attack complex schemes set up to avoid tax but it should not do it retrospectively.”

That’s a false argument: it’s just been ruled lawful to pursue tax cheats. the profession should be applauding, not condemning HMRC for doing so. Why is it that accountants are so keen to join bankers in the pit reserved for the pariahs in society?

Richard Murphy HMRC, Isle of Man, Tax avoidance

A commentator on this blog has said, referring to the UK’s requirement that the Crown Dependencies drop their zero / ten tax proposals, and quoting me in the first instance:

RM:  zero/ten is dead - unfortunately IOM and Jersey seem to be slow in realising this

Comment: Don’t believe this is true. I think the Islands are extremely savvy and they know perfectly well that zero/ten is "dead" but it works for them so why bury it any faster than they have to? Here in IOM I am pretty sure that when they first proposed it they knew the full package wouldn’t pass EU muster and that is why we only found out about the distributable profits charge on resident companies 3 years later. Another 3 years on when that hit the buffers we got the attribution regime and now a full 10 years on the rumblings are that zero/ten doesn’t cut it at all. Another model will be on the drawing board as we speak. It is a game of chess in which the Islands work out their next move AND the opposition’s next move in the fairly certain knowledge that it will take the lumbering, corrupt, bureaucratic giant a good while to reach the same conclusion.

I admire the admission of cynicism in the official approach to cooperation on tax matters that this comment reveals. I have every reason to think that this is exactly the approach the islands take.

I do, however, think the commentator gives the island’s far too much credit. I was, to some limited extent, involved in this whole process in Jersey. They, like the Isle of Man (with Guernsey, as ever, tagging along) thought zero / ten was really smart. Indeed, I recall an IoM lawyer calling it “a smart piece of footwork” back in 2004 or 2005. And the principle of zero / ten was approved by the EU in 2003.

The difficulty was that having proposed it the islands realised that they could not live with it. the failure of zero / ten has nothing to do with the EU or the UK: if the islands had really mean to charge zero per cent tax on companies there was nothing the UK or the EU could have done to stop them.

But what they realised, especially in the case of Jersey, was that they could not live without maybe a third of their tax revenues. As a result they tried to get round the nightmare they had created for themselves by re-introducing the ‘ring fences’ the EU had tried to outlaw – specifically charging locally owned companies one rate of tax and those operating ‘elsewhere’ to zero tax.

It was not zero / ten that failed. It was the incompetence and dishonesty of local politicians, civil servants and tax advisers in proposing a solution for the islands that failed to deliver the tax revenues that met the island’s needs that caused the failure.

And because the cynicism has not gone away I suspect the next proposed solution will fail too.

Richard Murphy Guernsey, Isle of Man, Jersey

I note the Bishop of the Isle of Man has issued a new year statement which is reported as follows:

Bishop Robert is calling on the whole community in the Isle of Man to work together, to weather what he fears will be a very difficult year.

In his new year’s message, he says he’s deeply concerned about the impact the loss of government revenue, due to the new VAT deal with the United Kingdom, will have on many Manx people.

Bishop Robert says those with the least to start with will probably suffer most when cuts are made in public spending, and he is hoping for tolerance all round, as painful decisions are made.

He hopes the Island’s well-known community spirit will continue to flourish

He should have mentioned the simple solution to the Isle of Man’s problems: it should raise taxes.

The place is very under taxed and yet wants public services.

The equation is easily squared but the stranglehold of the finance industry will, if it continues, drive the poor of the island to desperate poverty. That’s what offshore finance does: it imposes cost on the poor to benefit the rich. The Bishop should have said so. It was his Christian duty to say so. I hope he does so in future.

Richard Murphy Isle of Man