A commentator here has sent an extract from today’s Manx Independent, which says:
Assessor of Income Tax Malcolm Crouch states, “We are awaiting formal assessment of Zero/10. We are not abandoning Zero/10, it has not changed. Waiting for clarity from the EU is frustrating for everybody‚Ä¶. Govt’s position is that ARI is a personal tax measure and not part of Zero/10 and as such is not an issue that it is appropriate for the EU to rule on”
As the commentator says: “discuss”.
OK, I rise to the challenge. The ARI is the “attribution regime” for Isle of Man resident individuals that means that the effective 0% rate of tax on companies resident in the Isle of Man is not available to companies that have Isle of Man resident shareholders. When such shareholders exist then the ARI scheme means that the undistributed business profits of the Isle of Man corporate taxpayer are taxed in the hands of the shareholder in question at 20% unless the company in question is a trading company, and they have only to distribute a minimum of 55% if their profit to their members on which they are then taxed – giving an effective enforced rate of 11% as a minimum for Manx resident and owned companies. A Manx resident company not owned by locals pays 0% and so it is obvious that there is a ring fence that is unacceptable under the EU Code of Conduct where the rules say local people must not be disadvantaged by a tax regime.
Now, formally, the ARI is technically applied at the individual level i.e. on the shareholder and not on the company. As a result the Isle of Man says the scheme is outside business tax – which is the issue Malcolm Crouch has referred to.
But the fact is that the ARI does, as a matter of fact create a ring fence. And it’s also a matter of fact that it replaced the earlier Distributable Profits Charge which had exactly the the same effect except it was operated by the company, not the shareholder. This charge failed the Code of Conduct in 2007, as I noted here. So, in arguing that they comply now the Isle of Man is relying on a simple admin change to argue that the ring fence is not in the business tax system but in the personal tax system bow and so the EU can’t rule on the issue.
That, vey politely, is about as aggressive as any tax avoidance scheme you’ll ever see, relying on a highly artificial construction of language to seek to get round an obligation. And in this case the fact that the Code if not law but a principles based system completely blows the Isle of Man’s argument out of the water: the principles of the Code have been violated and that’s the beginning and end of the test. In that case the Isle of Man has failed. It can argue if it likes, but the UK will have to legislate for it if it does not comply.
Now there’s an interesting scenario in the making - and one the Island will not want to confront, I’m sure. So the bluster will come to an end in due course and the Isle of Man will comply. It has no choice.
But in the meantime I refer back to the Irish Times article I noted this morning:
Known for being self-important on occasions, Thomas The Tank Engine always believes he is deserving of more respect and he gets annoyed when he does not get it.
On the Isle of Man, right now, there are a few more like him.
Could it be Malcolm was one person they had in mind?