Questions and Answers on current Tax Issues
Isle of Man Finance
News Update November 2009
What does the change in the VAT revenue sharing arrangement between the Isle of Man and the UK mean?
The Customs Agreement between the Governments of the UK and the Isle of Man includes the pooling and sharing of VAT receipts and other indirect taxes and it is this part of the agreement that has been revised. This agreement comes under review from time to time and we can understand why the UK had to examine all its financial arrangements during the current fiscal climate. The revision means a loss of income to the Island of at least £50million for the year from April 2010 and a further £50million from April 2011.
In addition, given the projected reduction in overall VAT receipts due to the performance of the UK economy and the lower rate of VAT at 15%, we will receive some £30 to £40million less than previously estimated. Consequently, for the financial year 2010-2011 the Island faces a total reduction of some £90million in our income from the Revenue Sharing Arrangement, from that previously estimated, with that figure increasing to £140 million in subsequent years.
Importantly the Customs Agreement, which has been in place for centuries, is still in effect and this benefits both countries as it allows free trade to continue between the UK and the IOM without customs barriers. This is especially important to the growing manufacturing, agricultural and import/export sectors in the Isle of Man. As the UK is a member of the European Union, the agreement means the Isle of Man is effectively in customs union with the entire EU.
What impact will this change have upon the Isle of Man?
The change to the sharing arrangement is a domestic issue and does not impinge upon any businesses or investors on the Island.
This situation is of course extremely serious for the Island and substantial adjustments to our fiscal policy will need to be made. However, we are a resilient and resourceful country and have a track record of adapting to change. As a prudent country we have reserves in place to replace the shortfall in our income in the short term whilst we examine efficiency savings, reductions in public spending and methods of raising additional revenue.
We will continue to grow and continue to diversify our economy to generate the income we need. We have been investing in a robust infrastructure and a highly skilled workforce which will enable us to speed up this business development programme. We have a nimble Government which has close and direct links to our communities and businesses so we will work closely and expediently with them.
The Isle of Man has been successful for many years and, as a result of past fiscal prudency, will be able to respond to this most recent challenge. We have strong reserves and have been consciously investing in infrastructure renewal in the Isle of Man for the last two decades so leaving us in a good position during this recession.
We have the ability to not only examine our capital and revenue spending programs but also personal taxation and a wide range of related matters. When combined with prudent use of our reserves, we will be able to adjust our economy over a period of time rather than take potentially harmful short term decisions.
As a Government, we are required to plan on a long term basis and that is what we intend to do. A key part of this is ensuring that our businesses’ competitiveness is maintained.
Will Government be changing its Corporate Tax policy?
The revenue sharing change and speculation about a change in our 0/10 policy are separate and distinct issues.
The EU accepted in 2003 when considering the Isle of Man’s plans (for changes to be made in 2006) that a 0/10 company tax regime was not harmful within the meaning of the Code of Conduct for Business Taxation, but we are aware that the issue is being raised at EU level again this year as Guernsey and Jersey introduced their 0/10 regimes two years later than the Isle of Man. We are keeping the situation under review so that we can determine any implications for our own regime.
We recognise that close attention to international standards on tax has been one of the consequences of the global financial crisis, which has transformed the fiscal and political climate around the world. The Isle of Man has a well-established and successful policy of moving in line with evolving international standards on taxation.
No immediate changes to the Isle of Man’s business tax system are planned; but a review of international developments will be carried out, including full consultation with business. The open lines of communication between our Government and the various business sectors mean we have the forum in which to develop our plans in a considered strategic manner.
The Government is keenly aware of the high level of competition internationally and will ensure that, if any changes are required to our policy, we seek to maintain international competitiveness and a so-called “level playing field”. We are committed to tax neutrality to ensure that the Island remains at the forefront of international commerce.
We are committed now and in the future to maintaining a business-friendly environment and the many attractions for enterprise that have contributed to our diverse and robust economy – specialist professional expertise, supportive and responsive government, competitive taxation, skilled workforce, excellent quality of life, world class telecoms infrastructure, sound financial regulation.
The detail of the revised agreement between the Isle of Man and the UK can be found at:
http://www.gov.im/lib/docs/cso/sharingarrangementsfurtherrevisionoc.pdf
Chief Minister’s speech to Tynwald can be found: http://www.gov.im/cso |
