Taxes

[manxchatterbox]

talk on the radio about the zero tax rate for companies being introduced and how there is a possibility the EU might scupper the whole strategy......

 

don't the Cayman Islands have a corporate zero tax rate??

[Politician]

talk on the radio about the zero tax rate for companies being introduced and how there is a possibility the EU might scupper the whole strategy......

 

don't the Cayman Islands have a corporate zero tax rate??

 

So far as I know, there is nothing either the EU or the OECD can do about it, as it is not a discriminatory tax practice. Indeed, the zero ten regime was specifically introduced to counter their concerns about the application of different tax regimes to resident and non-resident companies.

[Gladys]

Yes, you are right to a degree Politician, but the idea was to create a tax environment which was acceptable to both, given the amount of influence each organisation can have over our economic destiny. They may not be able to do anything directly, but wasn't the move to avoid being blacklisted by those huge organisations, thus securing our place on the side of good? (Something to do with FATF etc?) Which is why many of our counterparts (Jersey, Guernsey etc) are going down the same path.

 

Although generally welcomed, there are some mumblings that the measures may not meet their requirements as, while they remove the unfair tax regime for companies, they do not remove it for individuals.

 

The requirement, as far as I can can see, was a back handed way of trying to outlaw offshore tax havens. These bodies couldn't overtly say that they didn't like tax havens (a term that is pointedly not used now), but played the reverse psychology route, saying we think your tax regime is unfair to your local population by not requiring non-resident owned companies to pay tax or only to pay the exempt duty and that fairness dictates that all companies, whether resident owned or not, should pay the same taxes. Rather than saying, we think you are a drain on the productive countries within our membership; you have built an industry on the lost taxes to our members so we are going to stifle, if not strangle, you out.

 

So the IOM responds, quite rightly IMHO, by agreeing to introduce a taxation system for companies which makes no differentiation in the tax treatment due to the residency of its ownership, by introducing zero rate of corporate tax (note zero rate, not no corporate tax, essential difference there) for all companies, apart from deposit-takers and a few other exceptions.

 

All well and good, apart from one flaw and that is the taxation of shareholders of IOM companies who, if they are residents, will be taxed on the distributions (dividends) from the companies which they receive. But, as I understand it , this tax is raised in the hands of the shareholders not the company. Non-resident shareholders, of course, won't because they fall outside of the IOM's tax net. There are provisions for taxing profits retained within the companies and if the companies do not distribute an appropriate amount of profit there will be a tax levied. But if that profit is being distributed to a non-IOM taxpayer and there is every incentive to make full distribution , will that be acceptable to the OECD/EU?

[Politician]

All well and good, apart from one flaw and that is the taxation of shareholders of IOM companies who, if they are residents, will be taxed on the distributions (dividends) from the companies which they receive. But, as I understand it , this tax is raised in the hands of the shareholders not the company. Non-resident shareholders, of course, won't because they fall outside of the IOM's tax net. There are provisions for taxing profits retained within the companies and if the companies do not distribute an appropriate amount of profit there will be a tax levied. But if that profit is being distributed to a non-IOM taxpayer and there is every incentive to make full distribution , will that be acceptable to the OECD/EU?

 

Presumably non-IOM shareholders would be liable to tax in their countries of residence on those dividends, so I'm not sure this would give the OECD any particular leverage. Or have I missed something here?

[Gladys]

Quite right in principle Politician, but it depends on the tax regime of the country of residence and how the individual's tax affairs are arranged. The point is that this new arrangement could be argued to discriminate against resident shareholders as it will tax dividends in locals' hands, but not in non-residents' hands (by a withholding tax), and that may be where the vulnerability lies.

[Politician]

The point is that this new arrangement could be argued to discriminate against resident shareholders as it will tax dividends in locals' hands, but not in non-residents' hands (by a withholding tax), and that may be where the vulnerability lies.

 

Presumably the answer would be to extend withholding tax or full disclosure from savings income to dividend income?