Tax Research issued a press release today on work I've undertaken on the income of the government of the Isle of Man. The full text is here, and it includes the sources for all the data referred to in this blog entry. The Observer has covered the story.
To put to simply I noticed an odd fact about that income. When I compared the VAT that it claimed to receive in its government accounts with its declared GDP the ratio was 21.7%. That's odd as their maximum VAT rate is 17.5%. It's even stranger as the UK, using a slightly more onerous VAT regime which is however broadly similar to the IoM's collects just 6.1% of GDP as net VAT revenue.
Now the UK has suffered carousel fraud, but the Isle of Man has an enormous finance sector in its economy which does not even charge VAT so I decided that the two should be comparable. If that's the case then the Isle of Man should only collect 6.1% of its GDP as VAT. How come it got more?
The answer is simple. The UK government gave it the excess. I mean that. It gave it the rest - some £233 million of excess VAT. This happens because the UK and the Isle of Man share a 'common purse' agreement on VAT. This means the Isle of Man's VAT is paid into the UK Exchequer, in effect. And then the UK gives it a payment in exchange based on a formula which is unpublished but which clearly has nothing to do with the real level of economic activity in the Isle of Man.
To put this another way, the UK is simply giving the Isle of Man the income it needs to run its government so that it need not raise it from its own population, and as importantly the tax exiles and their companies that are located there. That means the UK is paying the Isle of Man to be a tax haven.
What is more, by doing so the Isle of Man can be a particularly aggressive tax haven. It is they who are driving the race to 0% tax among the Crown Dependencies and it is they who are proposing the introduction of income tax caps (£100,000 maximum bill in their case). All this is done at UK taxpayer expense.
We even subsidise their defence budget by £37 million as well. The net result? The UK government subsidises the Isle of Man government by at least £270 million a year - which is about half their government spending.
Put simply, this has to stop. And the UK can stop it. It has a duty to do so. No longer can it claim to have no influence on the UK's tax havens. By subsidising the Isle of Man as it does it has had a massive impact on trends in their behaviour over the last few years. By simply ending this subsidy all of them would be able to, and indeed would have to charge tax as this is the only way they could survive. Why should the UK want for anything else?
Or is it really the case that the UK promotes the havens after all? It's time for the people of the UK to be told. It's time for the people of the world to be told. After all, some of them are pretty upset about the Isle of Man as well.
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Let’s Try This Argument Again Shall We?…
* The answer is simple. The UK government gave it the excess. I mean that. It gave it the rest – some £233 million of excess VAT. This happens because England and Scotland share a ‘common purse’ agreement on VAT….
It’s very difficult to undertsand people like Tim Worstall of the logic of their argument.
Tim may not have noticed thet that England and Scotland have been in Union, and therefore share revenues as one United Kingdom for 300 years whilst in contrast the Isle of Man is an independent territory, but the rest of us have.
Which means his argument carries no weight.
[…] The UK – paying the Isle of Man to be a tax haven […]
[…] The UK – paying the Isle of Man to be a tax haven […]
[…] The report I wrote on the UK’s enormous subsidy to the Isle of Man did, unsurprisingly, attract attention in Jersey. At least two politicians asked questions in the States on the subject, so yesterday the chief minister, Senator Frank Walker had to answer them. Which he did, in his own style. According to the Jersey Evening Post he said: the £270 million figure for the subsidy quoted recently by the Tax Justice Network was a gross exaggeration. […]
Interested to read your comment about the Isle of Man Finance Sector which does not charge VAT. Firstly, I think you need to define what the Finance Sector is and also explain why no VAT is charged and whether this differs from the equivalent sector within the UK.
Also interested to read that the UK subsidises the Isle of Man’s defence budget. The UK is responsible for the Isle of Man’s external matters such as defence and the Isle of Man pays for that.
This Agreement is exactly that, an agreement reached by negotiation. One has to ponder at the relative bargaining powers of the two parties.
The UK and Isle of Man finance sectors have identical VAT rules. What is the point you are trying to make?
If the UK does not charge the IoM realistically for defence (and it is clear it does not) the real question is why does it do that? Why is the UK deliberately giving the Isle of Man a subsidy to be a tax haven and is that legal, for example, under EU competition laws?
Pleas ask the real questions, and do not offer lame excuses.
I thought this was a serious website and so was surprised to be accused of making lame excuses when I was asking genuine questions. What do you define as the finance sector, because there is much ancillary industry here that does charge and collect VAT? If the rules are the same for the UK and IOM finance sectors on VAT, what is the problem? It may well be that the IOM’s position actually helps the London financial markets.
How realistic does the defence charge have to be? How do you quantify it? Where is your evidence that the UK is giving the IOM a subsidy to be a tax haven?
Heather
This is a serious site. The point I was making is simple: the definition of financial services is the same in the IoM and UK, therefore the comparision is valid. And the IoM has a finance sector massively bigger than the UK’s (data in the paper -follow the links). In which case it should collect much less VAT than the UK, but actually collects much more, which shows that the IoM’s figures are not based on economic reality but on an arbitrary subsidy. That is my serious point. Can you tell me what the flaw in my logic is?
Can you also tell me how the Uk is helped by having an island that promotes tax fraud located just off its shores? So much fraud that the UK is having to promote a tax amnesty simply to deal with the scale of it?
And ifyou want the evidence – please read the paper. It’s convinced serious observers who are operating without bias. If it doesn’t convince you, what’s wrong with my logic?
Please provide alternative argument rather than unsubstantiated rhetoric. Then of course I’ll take you seriously.
Richard
My point about the IOM, and other offshore jurisdictions is that they feed the London financial markets. Please also point me to the place in your research that states that the IOM financial sector is bigger than London’s? If it is, we have kept very quiet about it.
The paper is not evidence but your interpretation.
The IOM does not wittingly become involved in tax fraud, our regulatory regime requires due diligence, an aspect of which is to check that tax advice (and have copies) has been obtained for the structure in question.
Heather
1) I have not said the IoM financial sector is bigger than London – I have talked about the finance sector as a proprtion of the economy as a whole, and the IoM’s is clearly vastly bigger in that sense than London’s
2) How do you know the IoM does not conciously attract tax fraud? It’s practices are covered by secrecy, the ability to avail yourself of which is being increased. See the Senate report of last August for clear evidence that the IoM is used for tax fraud;
3) Thanks – but I’d rather London did not have your ditrty money that seeks to avoid / evade tax, if not in the IoM then almost certainly in the beneficial owner’s home state.
4) My analysis is evidence – very high quality evidence.
So, where is your argument?
Richard
It makes me somewhat sad to see articles like this. Can I please ask what your first hand experience of working in a jurisdiction such as the Isle of Man or the Channel Islands is, and what that taught you of the degree of enforcement of statutory regulations?
Dan
Let’sput this simply. If profesisonal people and banks in the IoM and elsewhere had done their jobs properly there would be no need for a tax amnesty as announced in the Uk today, from which billions in unpaid tax will, I am sure, be collected.
I rest my case.
If you have a defence I’d be curious to hear it. I cannot think of a credible one.
Richard
Well my argument would be that as far as I am aware the vast majority of professionals both on- and offshore do do their jobs properly and take the greatest care to ensure that all relevant laws and regulations in their jurisdictions are complied with.
That, however, was not what I asked and in fact I advanced no argument with what you had written. I did express sadness at the article as I felt the article somewhat unbalanced.I am genuinely interested in your experience of UK offshore institutions
Dan
This is futile. So many emotive interjections such as ‘lame excuses’, ‘tax fraud’ and ‘dirty money’, it is hardly worth bothering about.
I thought this was a serious site aimed at finding out what the whole offshore industry was about, with an understanding of the environment in which we work and with constructive comment. I do not support tax evasion from any state (nor do any of my colleagues) and I had hoped this site might help me in understanding the wider issues as a kind of CPD exercise. But, no.
Ah well, this will be the last post from me.
Dan
Your logic is not sound. A journalist does not need to be a doctor to write about medicine. An accountant who has not worked in the Isle of Man is not prevented from analysing the evidence. I have done that analysis. I find the Channel Islands and Isle of Man wanting. Why else would the UK need a tax manesty to clear up the enormous number of fraudulent bank accounts held there? Please answer that question.
I note you say this:
[A]s far as I am aware the vast majority of professionals both on- and offshore do do their jobs properly and take the greatest care to ensure that all relevant laws and regulations in their jurisdictions are complied with.
My reply is simple. That’s not good enough. You have also to be sure you’re not facilitating crime elsewhere to ensure that you’re not either assisting money laundering or tax evasion. You are saying pprofessional people in the Isle of Man are not doing that. This is precisely the problem the US Senate identified with the Isle of Man. Strict observance of local law allows a person to turn a blind eye to the reality of what is happening. I suggest that this is commonplace.
Richard
Richard,
You appear to be trying to turn this into an argument when I made it clear I was raising no argument. I agree that a journalist does not need to be a doctor to write about medicine. However, it most certainly does help if the journalist can be both (see for instance http://www.badscience.net ). My feeling is that experience in an offshore jurisdiction, especially carefully policed ones such as The Channel Islands and the IoM would inform the research better.
The accounts involved in the UK tax amnesty are not held fraudulently. It would seem to me that there is a legitimate right to hold money in an offshore account, so long as it is declared to HMRC or the relevant authority.
Dan
Of course I am arguing! I disagree with you.
The accounts involved in the UK tax amnesty are by definition held fraudulently. A condition of their use is not being met: tax is not being paid because their existence is not being declared and a financial advantage is being secured as a result. There is a deception; there is a gain; that is a fraud, by definition.
How can you say otherwise?
How can any person regulated for the purposes of money laundering in the IoM have not suspected this? These accounts are used for money laundering. In that case how could they have avoided their obligation to declare a suspiscious activity?
Can you answer that?
Richard
My answer would be that the fraud is not in holding the account: There is a legitimate right to hold those accounts. The fraud is in the non-declaration on a tax return in the country of domicile of teh account holder. That is tax evasion and you will get no argument from me on that. That said it is the individual responsibility of every tax payer to declare their earnings. That seems straightforward to me.
Dan
I presume you realise that your answer is evasive. It is the duty of the account operator to report their suspiscion if it is reasonably founded. In this case, we’re talking about the baks as the account operators. They have duties quite independent of those to their custmer under money laundering regulations.
Enquiries under the EU SD gave banks grounds for reasonable suspsicion of non-declaration by their UK and EU based account holders – all those who asked not to exchange information by definition created that suspiscion.
Why didn’t they report?
Richard
I’m not disputing what you’re saying. Based on the numbers you provide, it does seem quite strange. However the numbers used are quite crude and it is difficult to directly compare the economies of a nation as large as the UK and as small as the Isle of Man without any adjustments to the figures at all.
Whether the UK is “bailing out” the Isle of Man government is a matter of opinion and not fact at present. We haven’t seen the basis of the calculation, and so we haven’t seen the whole side of the story. If you take elements of a whole in isolation, it is possible that you may get a warped idea of how the whole really is.
We need to see all the facts. I dare say that this might be in the public interest, so the basis of VAT apportionment between the UK and Isle of Man might be provided by virtue of the FOIA. We could then start to make an informed opinion of whether the chosen method of apportionment and the rationale behind it was fair or not.
You’re a finance professional, leave the sensationalisation of a back of a fag packet calculation to the press.
Jim G
Why tha anonymity? I always wonder that. I guess it helps when you have no argument.
The calculation done is robust, economically valid, almost certainly very close to being accurate, as reliable as that any government could produce, and better than that anyone else has done.
I’ve also laid out the whole basis of the calculation.
Now please either say what’s wrong with it on as robust a basis as I have used. Otherwise, in the absence of government data I think it’s reasonable to assume I’m right. All the evidence points to it, after all.
Richard
There is no anonymity. You have my name and the email is valid. I do not keep a blog, hence why there is no web address.
There’s no need to get defensive about your calculation. I’m not arguing with you about that. The numbers seem strange, not your basis of calculation or anything the you have done. On the basis of your calculation, I completely see your point. Well done.
What I am saying is that the UK and Isle of Man governments may have performed the calculation to apportion VAT on a different basis to what you have done. We have not seen the basis of THEIR calculation. The different basis may, for all we know at present, have some kind of reasonable rationale. And I am sure that their basis surrounds more information than VAT revenue and GDP, which although may prove to be useful indicators could also be crudely categorised numbers in the presence of other information, which we do not have.
My point is in the absence of government data, it is not reasonable to assume that you are right. It is lazy to assume you are right and not strive to find a more reasonable answer or at least the definitive facts. If an auditor was looking into numbers at a client and found something a little strange, would they immediately scream out fraud and refuse to sign the audit report? No, they would look at all the possibilities and gather the facts. That is their duty. I am saying you need to see the facts, before you give such a definitive opinion. I personally feel that only the press would sensationalise over this, and as a finance professional you have an ethical duty to be more objective.
Once you have all the facts, you may indeed be right and well done to you for noticing something which appears to be inequitable. But until you have the exact basis, and foundation of facts, I feel you can’t assume that you’re right because you’ll look an idiot if you are wrong. It seems a bit strange to me that the UK government would through away hundreds of millions of pounds without a just reason.
Your final sentence “All the evidence points to it, after all”, is not true. For starters, there is a comment from the Isle of Man government (linked from this site) that states the calculation is agreed and performed using a sharing method which remains “fair and equitable” for both the UK and Isle of Man. You have failed to look into the point that there may be a different method to yours which is fair. This gives the impression that you are deliberately being biased and ignoring any point which may compromise your argument.
This could be perceived as a self-interest threat to your own independence as an outside investigator. Furthermore, forcefully and continually arguing the same point, omitting to look into other possibilities and blinding yourself to any scrap of contrary evidence or mitigating factors, will only weaken your argument in the eyes of others. This is why previous writers above (and I’m sure many others who have not commented) will not return to a site which appears to be biased and not thorough.
Jim
Thanks for the comments.
Actually, I have discussed this issue. I got no data. That is the official policy on this issue. So I published anyway. Because I’ll never get all the ‘facts’.
Will I look an idiot if I’m wrong? I don’t think so a) because I’m very sure I’m not far out and b) because your logic is that all risk takers who get things wrong are condemned as idiots. What a boring and unenterprising world we’d live in if that were true.
As for the ‘fair and equitable’ comment – so what? It may be fair to each party and I could be 100% right. Percpetions of ‘fair and equitable’ differ. Your comments prove that in themselves.
So, am I biased? Of course. So are those who do not like my opinion. That’s OK. The objective person does not exist.
Am I thorough? Yes I am. I used the available evidence. Which is good enough. If you don’t like the only obvious conclusion it suggests, that’s your problem, not mine. But please disprove me if you want to argue logically. I notice no one has sought to do so.
Richard
What about the Freedom of Information Act?
This is my point. You have no data. So you shouldn’t just assume that your point is the most just and equitable. And you are not thorough. You used the available evidence (and from what I see your sources vary from official documents to Wikipedia which brings into question their comparability), but there is a lot more official evidence, you just cannot get hold of it. A thorough person would research as far as possible and clearly state the limitations of their own work. You brush over this as if it’s irrelevant. You have based your decision on a number of sources found online. If I wanted to make as definitive a decision as you have here, I would like to see more information than that.
You can’t disprove someone like you. There is more than one answer to this. It is not a case of disproving and you know exactly that, which is why you are asking people to disprove it. You are arguing and not collaborating. You will not open your mind to the notion that there may be many other just and equitable methods of allocation. Even if the government information became available, because you are biased you would refuse to agree that it is ALSO (or even more) just and equitable, because you spent some time doing the calculation above and are proud that you might have caught someone out. This makes you feel good about yourself, and judging by the one-sided passion you portray on this site, you would not want to let go of that. This is the self-interest threat. It is for this reason, that the facts and numbers in your report are interesting, but your opinion on how “right” they are, and how other people should “disprove” them is of little relevance to any reasonable person.
By your own admission, you’re a biased and subjective investigator who is attempting to give us, what in my opinion, constitutes only partially backed up advice which may or may not have a founding in fact. It’s a given that biased and objective are subjective states in themselves, but you appear to be more biased and less objective than any reputable professional advisor. If you are biased then it would therefore seem to clients that you will look after your own interests and not theirs, will seek to see things the way you want to see it rather than look at the underlying facts. If you are biased, you are more likely to distort reality and cause someone to make poor decisions. In other words, there is a lack of insight.
I am not disputing what you are saying. I am disputing the way you say it. By all means publish what you have found. Take that risk and say that this appears to be wrong. I admire that and I would do it myself with the appropriate caveats. What I wouldn’t do, is ram it down people’s throats like you are doing, telling everyone their logic is twisted, and that you are right because there is no other information which proves you wrong. Point in case, you are acting like a biased tabloid newspaper, as opposed to a collaborative financial professional. People are generally are more suspicious of what they read in the tabloids.
This is of course purely in my own humble opinion, which I am entitled to as much as you are yours.
Jim
I agree your are entitled to your opinion.
What surprises me is how sure you are that decisions are made on more information than I have used here, or that there is in most cases more evidence available than I use.
The simple fact is that in many economic decisions that is not true. Hunch and intuition based on a plausible case derived from data which is known to be flawed (as almost all economic data is) forms the basis of just about every known economic policy the world over.
In other words, the standard I’m using is sound.
I respect your right to question it. You may disagree with my style. But it takes that sort of style to break the mould of current perceptions of acceptability. What I will disagree with is that this suggests I might fall short of some professional standard either as an accountant or economist. I’ll simply disagree with that. But then, I’m not one for dithering (read my blogs on that point, today).
And curiously, whilst writing the previous paragraph a professional person from a major international firm rang me asking my advice on this very subject, on which I had secured more information than they had been able to do.
I rest my case.
Richard
Based on the information that you have gathered here, I personally would not make a finite decision. This is what I am trying to say. We can only explore possibilities. We cannot say that this is definitely happening like you have. For me to be in a position to hold the same opinion as you, I would need to see more information. And if I can’t, I can only say it is a possibility and caveat it as such. In my opinion you have omitted to do this.
I have already said that I find the information interesting. The numbers themseves are a good read. Notwithstanding other possibilities and the limitations of your research, the numbers speak for themselves, as they should, and thus should require no hefty defence from your good self. This is why someone from a reputable firm has phoned you up to ask about them. I feel, however, that the person from the reputable firm, will be wary of your overzealousness in terms of you saying “this is the way it is and it can’t be anything different, prove it!”.
I work for a Big 4 accounting firm and I regularly perform investigations and analysis of organisations operating across the globe. I will not disclose the exact nature of where I work, as I am representing my own opinion and not my firm. I seek and analyse information from registrars and obscure jurisdictions across the planet, and I will always have to question the reliability, comparability and nature of the information obtained. Because public domain information is by nature a matter of disclosure regulations or will, and is never a complete and full picture of what we would like/need to see, we are never in a position to give finite “this is it” advice like you just have. Furthermore, the information obtained by yourself is hardly difficult to find, it is on the public domain and as such is there to be found if you want it.
All I am saying is that your version of events is a possibility among many. And indeed an interesting one which raises questions. But it is not necessarily “THE ANSWER” as there could be another version of events of which we remain ignorant.
The reason I replied was not to question your calculation methods, but because I felt the way you defended them was verging on paranoid in some respects. I see your logic and don’t question that. I just feel you need to be more open, collaborative and constructive about what people say to you as well as more open to possibilites and caveats when writing your article in the first place. Standing on a pedestal saying this is my find and defending it by arguing like it’s some magic treasure, I feel is going to do you no favours.
This will be my last comment. I hope you see my comments are intended constructively and not to antagonise. I wish you all the best, and if it turns out that the subject matter of your article is unjust and unequitable, I commend you for finding it out. Good luck.
J.
Jim G might like to read http://www.taxresearch.org.uk/Blog/2007/04/25/dithering-accountants/
I’m sure you don’t give positive advice. That’s not what big firms do.
But I appreciate your comments all the same.
Richard
I believe Dan, Heather and Jim G were all trying to make valid points – you obviously have no interest in hearing anybody’s else’s point of view except your own. What started as an interesting article has now deginerated into what would appear to be witch hunt against a highly regulated and well respected jurisdiction.
Andrea
Well regulated?
Well respected?
Who by?
International criminals?
Remember that’s what tax evasion is
And the IoM is in the business of facilitating it as a supplier of corruption services.
A supplier of which corruption services? Be more specific – and even better, name companies who you know are supplying such services!
If you haven’t read the report sent to the US Senate last year on corruption in the Isle of Man then I suggest you start there.
There’s about 400 pages of it.
What more do you want?
With what more authority?
Presumably a report on corruption in the US would run to slightly longer than 400 pages……
Have you ever visited the island or done any business with any company here, or are you just basing your arguments on various articles or reports you have read?
One doesn’t need to have beaten one’s wife to know it’s wrong
Observation can provide all the evidence one needs
But as a matter of fact, yes I have done business in the Isle of Man. That experience provided part of the reason why I now argue as I do.
Observation is one thing but quite subjective I would suggest – asking questions to clarify is much more sensible
I have done business on the IOM and in other jurisdictions and know where I would put my faith and trust in mine and my clients’ affairs – the IOM evevery time
Please tell me what your business is so that I might understand what need your clients might have for using the Isle of Man
For the sake of those who might follow this correspondence I should disclose that ‘Andrea’ is mailing from a Manx (Isle of Man) email address. Her claim that she does business in the Island might in the circumstances be disinegenuous. Or, maybe, misleading.
Thanks for that clarification – I am attempting to be neither disingenuous or misleading – I actually help run a CSP for legitimate clients who not only have to satisfy our stringent KYC requirements but also those of the FSC.
Acronyms do not help readers
Might you translate for their benefit?
I’ve got board waiting, so I offer this from E & Y at http://www.ey.com/GLOBAL/content.nsf/Isle_of_Man/Fiduciary_CSPS
On the 1st November 2000 the Isle of Man’s Corporate Service Providers Act came into effect.
The Isle of Man had recognised the need to regulate the providers of corporate services for some years. Because the legislation is ground breaking (for example, there is nothing similar in the UK) the Financial Supervision Commission (FSC) undertook extensive consultations with professional bodies and associations as well as CSP’s to formulate a pragmatic approach.
Corporate Service Provider – Definition. A Corporate Service Provider (CSP) is a person who provides certain specified services to corporate entities (companies), whether incorporated in the Isle of Man or in any other jurisdiction. The regulated activities that comprise corporate services are defined in Schedule 1 of the CSP Act.
Regulated Activities. The regulated activities can be broadly summarised as follows:
Formation of Companies
Sale, transfer or disposal of companies
Provision of premises for registered office or accommodation address for companies
Acting as, or arranging for others to act as a director or shareholder/member of companies
Arranging for others to act as a company secretary of companies
Performing any company administration functions, which include inter alia keeping a company’s registers, making statutory returns, preparing accounts, preparing minutes or recording resolutions of general meetings or directors’ meetings.
The legislation aims to protect anyone engaging the services of a CSP in the Island by imposing on CSP’s standards of “fitness and properness”. By requiring all CSP’s to conduct their CSP business to the highest standards the Act also aims to protect the reputation of the Isle of Man.
I know of no reason why anyone need ever form a company in the Isle of Man excpet for local trading reasons.
Knowing your client is another way of saying you know who those who are abusing the laws of another place are.
The regulation put in place is as a result totally meaningless
The Isle of Man is itself totally dedicated to undermining the tax systems of other countries, the deomocratic process worldwide and in exacerbating world inequality and poverty
That is, in my opinion, a supply of corruption services for it corrupts the well being of the world
Those who work in that environment join in that supply process
Ticking a box does not legitimise it
[…] 1) The Isle of Man does not enjoy the benefits of indirect taxation. It enjoys the benefit of being subsidised by the UK to the tune of £270 million a year. That’s not a tax system. That’s aid. […]
Richard,
The calculations behind your claim are wrong.
There is a common VAT system for the IOM and the UK.
When companies in the Isle of Man purchase goods from the UK that are used or sold on the island, the VAT is paid to the UK Government and appears as a domestic VAT receipt in the UK but the IOM VAT authorities reimburse or allow for the VAT registered IOM traders for the VAT paid to UK.
Of course, the UK VAT authorities also reimburse VAT registered UK traders who buy goods in the IOM. This amounts to far less because much of the IOM income is from tourism and financial services, and very little from the export of goods. So you must deduct from the income of the Isle of Man Government the money they reimburse to IOM traders who in turn paid this money to UK companies who paid it to the UK government.
Once you net out this large circular flow of funds, your claim of a massive subsidy is simply false.
Paul
Fascinating that yet again someone from the IoM tries to defend the indefencible without reference to the facts, which facts show I have to be right (as, after all, Allan Bell, the IoM finance minister has agreed).
In your case Paul your logic is obviously wrong. There isn’t a situation of payment and reimbursement between the UK and IoM which has to be reconciled in the way you suggest. There is a net revenue sharing pool. And because the IoM collects over 21% of its GDP in VAT rather than just over 6% in the UK that revenue sharing pool is obviously wrong – not at the expense reimbursement level but at the top line level.
Accordingly your argument makes no accounting or economic sense. For it to be rightit would also be the case that Isle of Man companies were purchasing more than their turnovers in the UK – which I think you’ll agree is rather unlikely.
So can we, as ever, stop the excuses and deal with the reality – which is that the Common Purse Agreement was designed to be a subsidy to the IoM and still is exactly that. Why can’t you accept the truth?
Richard
😡
The only plausible conclusion was that the earth was flat in the absence of available data and church/state/academic officials willing to listen….
Isle of Man residents will pay significantly more UK VAT with online shopping. Generally even a local UK chain store simply does not have the same range in store, all sizes in stock, etc. The Isle of Man Post Office is sometimes referred to as amazon IOM or eBay IOM.
A higher percentage of VAT transactions will be at a lower rate than the UK due to a spike in home improvements.
http://www.fmb.org.uk/cutthevat/(wshlru45temdcwurn0zwtu55)/default.aspx?step=5
In a small island with prosecutions published in the local free newspaper delivered to every household, the black market is relatively smaller in the IOM c.f. the UK.
IOM
This data has nothing whatsoever to do with the story here – which is the arbitrary reallocation of VAT paid irespective of underlying economic activity
Do you have anything to say on that?
Richard
[…] to the Isle of Man though, given that the UK literally gifts the Isle of Man government more than half its annual income each year, a subsidy we provide so that it can operate as a tax […]
I can see Richards points and tend to agree with him in his opinion in the absence of further facts.
Why this continues without a transparent discussion from HMG or our other bodies eg by Public Accounts Committee or NAO itself raises a question about how we are governed.
Why should concerns be raised by the US Senate and not thoroughly looked into by the UK authorities and publicly reported on? Who knows it may have helped prevent more of excess problems like we have had recently.
If this refund, subsidy, or tax credit is needed lets hear the justification and the politicians account for it. After all the reason may be that of sheer UK incompetence or benevolence.
Maybe suspicious activity reports should have been filed, but i doubt HMRC are unaware of problems. It appears to me that politicans may set the system up to enable responsibility to be deflected. eg MPC, Suspicious activity reports etc. They have methods of controlling this at a macro level, rather than a micro level via individual reporting. But do they really want too?
Reference the domicile issue and tax? seems to be to hot to handle BUT now more transparent. Compare with retired UK citizens pensions not being uprated with inflation if they live outside the EU, transparent if unfair.
Its a blog, serious and opinionated, but i enjoy reading it mostly. Publicity and news sometimes combine in non traditional ways to change mindsets and views. Sunlight transparency and accountability may follow.
I just like a low profile myself.
http://en.wikipedia.org/wiki/Quis_custodiet_ipsos_custodes%3F
The Common Purse Agreement permits the Isle of Man to a share in the United Kingdom’s Customs and Excise revenues to compensate for the UK imposing excise taxes directly and indirectly on the Isle of Man. The agreement is so called because it effectively sets up a ‘common purse’ for the receipt of excise duties and revenue, which is then split between both treasuries according to agreed formulas.
UK VAT receipts for the 2008/09 tax year are projected at £83B, but the other excise duties such as fuel tax, alcohol and tobacco, air passenger duty etc amount to a further £65B. So the correct calculation is (83+65)Billion * (IOM population) * (IOM per capita GDP) / ((UK population) * (UK per capita GDP)). In the agreement, the population of the Isle of Man is adjusted upwards because of the large number of visitors. The fact that visitors to the UK don’t count against this is entirely fair, because the £40 air passenger duty on each person flying to and from the UK is collected and spent by the UK Treasury. I don’t have the 2004/05 figures to hand, but using the UK treasury 2008/09 tax projections, taking the per capita GDP to be 20% higher in the IOM. In the 2005 financial year there were 323,018 visitors to the Island, resulting by the agreement in an adjustment of 58,903 to the population figure. Fiscal population estimates used for 2005 financial year: United Kingdom: 60,303,151 Isle of Man: 137,295. This calculation results in an amount of £404M owed to the Isle of Man compared to the actual receipt of £325.8M.
So your claims appear to based on the false premise that it is a VAT sharing agreement. The agreement covers many further excise taxes unilaterally imposed by the UK on the population of the Isle of Man who don’t have the ‘benefit’ of representation at Westminster. I believe your article gives a completely false account of the true situation.
The reason the Isle of Man Government can afford lower rates of income tax is because low taxes promote a very low rate of unemployment and strongly discourage the black economy. This is a fundamental lesson for everybody advocating big wasteful government.
The dirty secret of the UK accounting industry is that accountants have a vested interest in onerous, complex and unfair taxation. It is taxpayers who don’t understand the thousands of pages of complex tax rules and who feel aggrieved and cheated that seek advice from accountants. So perhaps we should all read Richard’s Blog with a large pinch of salt! Self interest is a common failing.
I can’t believe this discussion – I haven’t read all the comments, so please let me apologise if my points have already been mentioned but I can’t go without saying anything.
I saw Andrea’s comments about choosing the Isle of Man every time – I am the same. I have lived and worked on the Isle of Man for my whole life and there is no safer or more secure place to manage finance. The KYC requirements and the verifications needed to even think about opening an account are as Andrea say – ‘stringent’.
Your patronising and condescending reponses lead me to think that you really have no idea what you’re taking about ‘Tax Research LLP’ – do you have any idea what Data Protection is? If service providers provided customers’ information to the authorities which led to fines and jail sentences, how can a bank have any claim to confidentiality and data protection?
People have a right to tax AVOIDANCE, which by definition is completely different to tax EVASION. Expatriates living abroad have every right to exploit their right of not living in the UK to enjoy lower tax rates – but it is not the responsibility of the service provider to assess for tax! When has it ever been their responsibility?
Also, FYI, the FSC is the Financial Services Commission and I think the people that are on the board would be offended to the point of anger to be considered as ‘international criminals’.
Get your facts and your attitude right before you say anything further.