Isle of Man Tax, Regulatory and Legal Developments 2004
18th January 2005
This article appeared in February's edition of The Lawyer magazine
The three years of 2003, 2004 and 2005 will be seen as the period when the Island laid down new foundations to take its economy forward to meet the challenges of a globalised and, theoretically, more transparent world. Accordingly the changes that occurred in 2004 should be seen to be a part of a strategy which is being rolled out by the Island’s authorities. This strategy is centred around an AAA credit rating, zero corporate tax, tax information exchange on a “level playing field” basis, strict AML and compliance with all material international regulatory norms.
Tax
In the tax arena, 2004 saw the confirmation of the introduction of zero corporate tax from April 2006 and an acceleration of this date for certain sectors, notably space related activities. The Island is more fortunate than the Channel Islands in that most of its tax revenues are collected from indirect sources, notably VAT. Zero corporate tax is therefore thought more capable of delivery in this jurisdiction.
In the field of the exchange of tax information agreements, the Isle of Man, in tandem with the Channel Islands, have entered into a series of bilateral agreements with individual EU member states to satisfy its commitment to introduce the same measures as applies within the EU in relation to the EU Savings Directive. The Crown Dependencies have opted for the withholding or retention tax option, initially at a rate of 15%. The tax only applies to individuals tax resident in Member States and not to, for example, bodies corporate or discretionary trusts. These agreements will come into effect in the summer of 2005 providing the Directive becomes operational.
In addition, during 2004 the Isle of Man continued its negotiations with certain OECD Member States in relation to entering into OECD style tax information on request agreements or TIEAs. The Isle of Man was materially involved in the drafting of the model TIEA. The Isle of Man’s stated policy in relation to the entering into a TIEA is that the Isle of Man must obtain some form of tangible benefit, whether economic or otherwise, as a result. In the event, no TIEAs were entered into during 2004 (only one has to date, that with the USA). 2005 should see at least 2 being agreed upon.
Regulatory
2004 saw a consultative exercise in relation to further strengthening the AML regime on the Island initiated partly by recommendations made by the 2003 IMF review of the Island and partly to keep pace with developments elsewhere. It would appear that the problematical area of mandatory retrospective KYC (being pre 1998 clients) is on hold, not least because of the UK backing away from this requirement.
During the year, the bill for the regulation of fiduciary service providers was introduced into Tynwald. This bill and the underpinning codes of practice have had a long gestation period due to a determination that the regulatory system should not be seen to run counter to existing trust law. The Financial Supervision Commission called upon the services of Professor Hay of Stikeman Elliott to guide them through this tricky balancing act. The bill and the draft codes now look in reasonable shape and should come into operation late 2005. Obviously, corporate service providers have been regulated since 2001. On a level playing field basis it would be nice to see the UK introducing analogous legislation!
Legal
Although there was a 2004 Companies Act, this is seen by practitioners as a housekeeping exercise. There is no doubt the Island needs a new simplified modern corporate vehicle to compete with the 2005 BVI version, whilst at the same time, not detracting from the Island’s international reputation for regulatory integrity. During 2004 Cains and Dickinson Cruickshank were tasked by the Treasury Minister with drafting a “world class” corporate vehicle bill. This was delivered to Treasury in December 2004 and is currently being reviewed by 2 leading commercial and tax silks before undergoing a wider consultative exercise in the early spring of 2005. The Treasury Minister has stated he wants the new vehicle on the stocks before April 2006 to coincide with the introduction of zero tax.
Andrew Corlett
Managing Director
Cains
Immediate Past President, Isle of Man Law Society
Member of the Isle of Man Government’s Branding, Market Access and Finance Steering Group Committees
For more information contact: Andrew Corlett. |
