Fresh Attack On Offshores

[hboy]

Sort of agree with Ai Droid, but then there is the matter of the retained profits charge which as far as I'm aware is charged only to resident companies -

 

No its charged to all companies but only applied where the shareholders are IOM resident (ie. where they might be retaining divs in order to defer tax that would otherwise be payable).

[bluemonday]

Mr Darling said the government welcomed the contribution made by people from outside the UK. But non domiciled families should after seven years pay a "reasonable charge".

http://news.bbc.co.uk/2/hi/uk_news/politics/7291841.stm

[ai_Droid]

http://news.bbc.co.uk/2/hi/uk_news/politics/7291841.stm

 

 

Interesting to note that the UK's gone through it's second revision of vehicle car tax with environmental considerations and we haven't had our first.

 

Anyone know what this means:

 

"Stamp duty on shared ownership homes will not be required until people own 80% of their home. "

 

Big drop in UK Corp Tax, the UK becomes (even more) a tax haven!

[Skeddan]

A front page 'attack' from the UK Independent. Plus columnist view.

 

The European Union will declare war today on Liechtenstein, Monaco, Andorra and Switzerland. Weary of losing billions of tax euros, the EU's 27-strong high command of economics and finance ministers, Ecofin, is meeting in Brussels to agree a strategy aimed at bringing the continent's tax havens under control.

The "home trio" of Jersey, Guernsey and the Isle of Man attract about $1trn (£500bn), much of it ex-UK.

 

So is this just a storm in a tea-cup (for us) and are they really just after bringing the last 'non-cooperating' countries such as Liechtenstein in line? Are we in for surprises from the coming budget, especially given the knee-jerk budgetary responses we have been seeing in the UK recently?

I read this piece by 'Tax Research' - the same guy who claims IoM gets £270m a year from the UK - which doesn't hold water. However what he says here does seem to raise questions and possibility IoM might be in the firing line over this.

 

http://www.taxresearch.org.uk/Blog/2007/10...iness-taxation/

 

I'm rather with La_Dolce_Vita on this - not really clear about what is going on. From what I make of this it looks like ring-fencing, and certainly doesn't seem to be good faith compliance but rather an avoidance scheme. If so, then La_Dolce_Vita raises a fair question:

 

Is the Isle of Man likely to last much longer as an Offshire Financial Centre?

Is it a case of just hoping no one will question the scheme, or is the criticisms in the paper unfounded and he's blowing smoke again? If so, can someone explain why IoM will not come under fire for this?

[localyokel]

I'm rather with La_Dolce_Vita on this - not really clear about what is going on. From what I make of this it looks like ring-fencing, and certainly doesn't seem to be good faith compliance but rather an avoidance scheme.

 

The Isle of man does not ring-fence. Ring-fencing is segregating parts of your economy from other parts so that different sectors or classes of people pay tax at different rates (or more importantly don't pay tax at all). For instance - having an exempt company system is ringfencing because these companies are explicitly exempt from tax whilst at the same time other companies (resident companies etc) are not. Its special tax treatment if you like.

 

What the Island has done is introduced a system of 0% company tax. Now every company pays £250 as a set fee to the tax man, and those companies that have resident shareholders also, for this year anyway, are liable to a retention tax in certain circumstances. The retention tax only applies when a Manx resident shareholder is deemed to be leaving money that would otherwise to paid out as a dividend (and taxed in the hands of the shareholder as a dividend) in the company for no other reason than to avoid personal income tax.

 

Therefore if a company is owned by a non resident it can issue dividends to the non resident tax free, but if the company is owned by a resident they either take their dividends in the usual way and are taxed on that income at local personal tax rates, or the retention tax applies should the shareholder choose not to pay a dividend but the company does not need the surplus cash this generates to cover expenditure and overheads etc (i.e, the company is being used as a tax free piggy bank to avoid personal income tax).

 

This is a pure residency based system of taxation. As an individual if you don't live here your not taxed, and if you do live here you are taxed. No ringfencing is involved at all as most countries use residency to determine whether you pay income tax or not, and every company is treated the same - they pay tax at 0% - because its what is paid out (or should be paid out) to the shareholder that is taxed when they receive it.

[Skeddan]

Thanks localyokel. That seems pretty much in accord with how the Tax Research paper explained this. However they are saying that this is simply a way of shifting the company tax so it looks like it isn't ring fencing. i.e. it is a work-around to deliberately try and get around the regulations but with the end of ultimately achieving the same thing. i.e. a dodge.

 

From what the paper seemed to be saying if something is now structured for the purpose of technically avoiding compliance with the regulations it will still fall foul. Rather like in NZ 'tax structuring' is 'tax avoidance' if the structuring is solely done for the purpose of avoidance.

 

To me it looks like 10% corporate tax - but simply making the shareholders liable for this if the company doesn't pay the dividend out for taxation. Beyond that this is simply shifting the point where taxation occurs - and at the end of the day has exactly the same effect as the 10% tax rate. (55% * 18%) Seems a bit like a weasel ruse to me - I'm not really persuaded that this has any merit other than as an attempt to get around ring-fencing. Doesn't matter if it don't wash with me - but seems like it's not going to wash with the EU either. Do you think this will satisfy them?

[The Old Git]

As an individual if you don't live here your not taxed

 

I thought there was a Non Resident Tax on dividend payments

[localyokel]

[skeddan' date=Mar 12 2008, 08:18 PM' post='308488]

Thanks localyokel. That seems pretty much in accord with how the Tax Research paper explained this. However they are saying that this is simply a way of shifting the company tax so it looks like it isn't ring fencing. i.e. it is a work-around to deliberately try and get around the regulations but with the end of ultimately achieving the same thing. i.e. a dodge.

 

I think you'll find the IOM refining things a bit from next tax year just to make some of the finer points clear. However, so what? Its pretty simple. Its not a dodge just the removal of ring-fencing - if you don't live in a place its usual practice for the tax man not to tax your income in the same way as you would a resident. That's pretty universally accepted practice.

 

To me it looks like 10% corporate tax - but simply making the shareholders liable for this if the company doesn't pay the dividend out for taxation.

 

Yep, the net effect is probably the same.

 

Beyond that this is simply shifting the point where taxation occurs - and at the end of the day has exactly the same effect as the 10% tax rate. (55% * 18%)

 

The crown dependencies had effectively been told to get rid of ringfencing and the IOM did it - Jersey and Guernsey will have to follow soon. Don't forget the IOM introduced plans to do away with ringfencing first and didn't use the £20m buffer it had put by to cover the transition. There will still be elements that will criticise but the IOM proved it was possible to do it.

 

Off island its pissed people off because they thought we would lose our shirts on it and it didn't happen. I'm surprised Alan Bell didn't make more of the fact that most of the buffer fund wasn't touched - it could have turned to sh*t and it didn't. I'd be taking out ads in the local paper if it was me.

 

Also don't forget - we are a Crown Dependency - if our economy goes tits up who will have to bail us out?

 

As an individual if you don't live here your not taxed

 

I thought there was a Non Resident Tax on dividend payments

 

Non resident tax

[La_Dolce_Vita]

I think you'll find the IOM refining things a bit from next tax year just to make some of the finer points clear. However, so what? What we do is tax people and don't tax companies. Its pretty simple. Its not a dodge just a re-clarification of the rules on ring-fencing bearing in mind that if you don't live in a place its usual practice for the tax man not to tax your income in the same way as you would a resident. That's pretty universally accepted practice.

 

 

Also don't forget - we are a Crown Dependency - if our economy goes tits up who will have to bail us out?

 

I don't know if I am missing some underlying facts but to me it is wrong that companies do not pay tax. I am of the opinion that companies are obliged to pay tax if citizens are to pay tax. There just seems to me to be a hypocrisy whereby citizens are expected to pay tax and punished severely if they do not but a blind eye is turned to non-resident companies.

More to the point, it seems very wrong that companies can escape tax in their country of origin by using the Isle of Man or other offshore centres. These companies have as much responsibility to have an input into society as does any other citizen.

If such activity is stopped the Island economy may go tits up and the impact would be devastating but the current system of taxation seems completely unethical and unfair. I don't believe that the provision of jobs on the Isle of Man is a good enough excuse for the continued existence of such a system. Does the existence of offshore areas not shift capital away from other countries? I don't know, maybe I have a limited understanding of the issue.

[localyokel]

I don't believe that the provision of jobs on the Isle of Man is a good enough excuse for the continued existence of such a system.

 

I'd say that statement is brutally naive. Which sector of the Manx economy do you work in? Do you want to be pushed out of work possibly never to work again? Do you want to go back to the 70's and 80's where manx people had no option but to leave the Island because there were no jobs? People seem to have short memories these days and forget how bad things were.

 

These companies have as much responsibility to have an input into society as does any other citizen.

 

Companies are responsible to nobody but their shareholders. They have no moral of social responsibility to do anything other than to manage their affairs to ensure profits are maximised and its not up to the IOM to police other countries tax systems. Were talking about companies legally using the IOM because they can and they can save money by doing so.

[ai_Droid]

I don't know if I am missing some underlying facts but to me it is wrong that companies do not pay tax. I am of the opinion that companies are obliged to pay tax if citizens are to pay tax. There just seems to me to be a hypocrisy whereby citizens are expected to pay tax and punished severely if they do not but a blind eye is turned to non-resident companies.

More to the point, it seems very wrong that companies can escape tax in their country of origin by using the Isle of Man or other offshore centres. These companies have as much responsibility to have an input into society as does any other citizen.

 

For a start, a blind eye was turned to non-resident companies, and that's what's changed with zero-ten. Resident and Non-resident companies are now on the same deal.

 

What you're talking about, in my view, is competition. Competition is is healthy in any market, and our taxation system is highly competitive.

[Skeddan]

These companies have as much responsibility to have an input into society as does any other citizen.

 

Companies are responsible to nobody but their shareholders. They have no moral of social responsibility to do anything other than to manage their affairs to ensure profits are maximised...

Localyokel - I agree but as I see it their duty is to maximise shareholder value - this is not the same as maximising profits. (short term maximisation of profits can lead to decisions which destroy shareholder value). They also have to comply with their articles of association (which might put limitations on how they conduct business - including ethical constraints), and do have to comply with the law- that is not a moral responsibility, simply a duty of compliance.

 

The distinction between profits and shareholder value has parallels in IoM's economy. Is the finance sector robust and economically viable and sustainable, or is it a bubble that is in danger of bursting? If EU turns out to be none too impressed by this creative approach to zero-ten, and it turns to custard, you suggest IoM's economy will go tits up without this. This sounds very fragile to me.

 

The question I have is not to do with any moral judgement about the goings on, or whether or not I want to keep jobs etc. It is simply whether this sector is robust and sustainable. If the effect of IoM's regime is tantamount to ringfencing in all but name and technical detail, will that stand up to the approach the EU are now taking - or will be likely to take in the next 5-10 years. If Lisbon Treaty goes through, EU has mechanisms to make it quite easy to declare 'economic crimes' against EU. Am I wrong in thinking this is a risk - or is it 100% kosher and beyond reproach and will never come under fire?

 

If it did turn to custard (e.g. the EU were brutally unreasonable and unfairly didn't take on board the arguments why this is ok), what would be the impact? Would IoM be very very deeply in the shit? Seems so - but is it total economic collapse or a big knock and loss of jobs and departure of many who came over to work in the sector?

 

Are there contingency plans to deal with this or is IoM counting on getting away with the 55-18 ruse?

 

What do you think might be viable and robust alternatives to 'quasi-ringfencing'? If IoM depends so much on offshore business, is this perhaps sustainable with a true zero-zero tax regime? (i.e. not require any company - local or not to distribute dividends or profits, or tax the shareholders of those companies based on profits earned by the companies, but only when actually received). Are there some industry sectors that might be given special true zero treatment regardless of whether local or offshore - e.g. aircraft financing, IP financing, etc. (so the local chippie will still pay tax).

 

IMO it would be to IoM's advantage to get its regime to be beyond reproach. IoM for tax structuring has a cloud hanging over it - i.e. it could go belly up because it is not as robust and sustainable as it maybe should be. That presents a risk - one which makes IoM less attractive than otherwise.

 

In short it is simply a question of can IoM stand up to an attack on its regime, and in the event it does not, how damaging might such an attack be and what might be its fallback positions?

[La_Dolce_Vita]

I don't believe that the provision of jobs on the Isle of Man is a good enough excuse for the continued existence of such a system.

 

I'd say that statement is brutally naive. Which sector of the Manx economy do you work in? Do you want to be pushed out of work possibly never to work again? Do you want to go back to the 70's and 80's where manx people had no option but to leave the Island because there were no jobs? People seem to have short memories these days and forget how bad things were.

 

These companies have as much responsibility to have an input into society as does any other citizen.

 

Companies are responsible to nobody but their shareholders. They have no moral of social responsibility to do anything other than to manage their affairs to ensure profits are maximised and its not up to the IOM to police other countries tax systems. Were talking about companies legally using the IOM because they can and they can save money by doing so.

 

But what I mean is that these profits would almost certainly be subject to taxation in their country of 'residence'. If these companies should be taxed in their country of residence, or where profits are made then the Offshore Centres are taking advantage of the fact that they can avoid tax. But I don't see how this is right as it would seem to be a system that lets the wealthy get away with not paying their share of tax and placing the burden and responsibility of taxation onto the poor. It comes across as one rule for one group of people and another for a different group.

My recent understanding may be coloured since having read these excerpts in the papers and having read a little on the Tax Justice Network, but are the articles on ethics, poverty, and corporate responsibility untrue?

[localyokel]

But I don't see how this is right as it would seem to be a system that lets the wealthy get away with not paying their share of tax and placing the burden and responsibility of taxation onto the poor. It comes across as one rule for one group of people and another for a different group.

 

My recent understanding may be coloured since having read these excerpts in the papers and having read a little on the Tax Justice Network, but are the articles on ethics, poverty, and corporate responsibility untrue?

 

The world is a pretty unfair place and guess what the rich pay people to make sure they don't pay too much tax. If you could afford to you'd do it too. Nobody wants to pay more tax than they need to. Its hardly shock news - your also making the common mistake of confusing tax avoidance (legal) with tax evasion (illegal).

 

If politicians actually invested tax money into better public services and infrastructure I'd go with your 'social responsibility' argument - but they don't. The EU is a safe haven for drunk, incompetent politicians, who have never undergone public scrutiny or a public audit in their lives. Why should taxpayers fund that? Billions disappear each year and their auditors have failed to sign off the accounts for what I think is 11 years now. Some of them according to recent reports are claiming up to 9 x their salary as expenses.

 

Don't forget that its the EU that kept useless tossers like Neil and Glynis Kinnock in jobs 15 years after their political sell-by dates because nobody even noticed what they were doing despite the fact that they took hundreds of thousands of pounds a year of public money in salaries and expenses.

 

The point is that the IOM came up with zero-ten. Others are going to have to implement it to survive, all we are doing is playing by the rules imposed from outside as we always have done. Its about competition as Ai Droid said.

 

The fact is that worse offshore centres like Lichtenstein exist that comply with nothing and still get away with it so I really don't understand what is so abhorrent about the way we run our economy.

 

Also consider the Isle of Man's history - main wealth generated by the running trade two centuries ago moving into offshore banking in more recent times. In between what happened? Poverty, broken up briefly by a tourism boom. Finance has been good to us.

[Skeddan]

Also consider the Isle of Man's history - main wealth generated by the running trade two centuries ago moving into offshore banking in more recent times. In between what happened? Poverty, broken up briefly by a tourism boom. Finance has been good to us.

The running trade generated quick profits mainly for outsiders who came over to exploit this. Is was non-sustainable, and the boom led to a bust with real fall out. Apart from some fat cats who did well, as I understand it, most people would have been better off without this business in the first place. Without it there wouldn't have been the real hardship and mass emigration overseas that took place when it all fell apart.

 

The fact is that more shitty places like Lichtenstein exist that comply with nothing and still get away with it so I really don't understand what is so abhorrent about the way we run our economy.

Lichtenstein is coming under real flack at the moment. I still don't see why IoM will be able to continue as is or why should not expect real pressure to be brought to change this within next 5 years - if not a great deal sooner. As far as I can see IoM is skating on thin ice over this, and cracks are starting to appear.