Fears Over Island's Vat Deal

[pongo]

Yes that seems fair enough if it's a dividend payment or a royalty US will withhold 30% tax. Though this can be avoided with a bit of planning.

 

How? The only way would seem to be to go via another company in somewhere with more favourable tax infrastructure - like, say, the UK or anywhere in the EU. Which would be complicated and expensive.

 

But for most normal trading activities

 

Collecting a royalty payment is bread and butter 'normal' trading activity for anyone dealing with intellectual property.

[wazir]

Yes that seems fair enough if it's a dividend payment or a royalty US will withhold 30% tax. Though this can be avoided with a bit of planning.

 

How? The only way would seem to be to go via another company in somewhere with more favourable tax infrastructure - like, say, the UK or anywhere in the EU. Which would be complicated and expensive.

 

But for most normal trading activities

 

Collecting a royalty payment is bread and butter 'normal' trading activity for anyone dealing with intellectual property.

 

In answer to the above:

 

How - I think you mean how is it fair?: It is fair because that's what the democratically elected government of America wants to do - it's withheld but it can be credited later if the payment is to a high tax jurisdiction.

 

If you mean how can it be avoided?: there are a number of ways, some involving using shell companies in between as you say (not as complicated/expensive as you think - few thousand a year tops), other involve using a third party company that you pay to sit in the middle and takes a commission for doing this (this is safer). Also there are things that can be done with USA corporations in favorable tax states like a Delaware LLC (which are treated like partnerships so its profits are taxed on you at the local Isle of Man rate and which is a USA corp. and so no withholding issue).- I am reluctant to be seen to giving advice on here - talk to a competent tax adviser - definitely one with an international presence.

 

Royalty payments may be your bread and butter but they aren't the normal for IOM companies. Since this is your bread and butter it would behoove you to talk to an adviser as I mention above.

 

I would say that I am pretty confident that you can sidestep that 30% withholding.

[pongo]

Nope nothing to do with whether it is fair. I was pointing to one of the practical implications of the IOM not having a double taxation agreements. In this case with the US but there will inevitably be many other examples which affect people here both in their business and personal lives.

 

Your solution is far too complicated compared with filing a 1 page online form like UK companies dealing with the US. It creates exactly the sort of unnecessary (and frankly shady) accounting complication and expense which I am talking about. Thanks for helping demonstrate the example. The only people who benefit from this sort of outmoded complication are accountants and tax advisor.

[Slim]

The reporting seems to be a re-negotiation of the agreement rather than abandoning it.

[When Skies Are Grey]

On the basis that the "kick back" is calculated agains the Island's GDP, it is now in the direct interest of the UK Govt to surpress the Island's GDP.

[wazir]

Your solution is far too complicated compared with filing a 1 page online form like UK companies dealing with the US. It creates exactly the sort of unnecessary (and frankly shady) accounting complication and expense which I am talking about. Thanks for helping demonstrate the example. The only people who benefit from this sort of outmoded complication are accountants and tax advisor.

Well... the people who benefit most are the people who avoid paying an unnecessary 30%. AS to being overly expensive it's quite simple to establish - if the tax saving is greater than the administration fees then it's not overly expensive.

 

Also mitigation of tax is well within the law and is eminently sensible.

 

Think about it like this, if you get a new car you ask your insurance company how much they will charge and then you compare with a new quote. You might think, it would be better if my wife had this one in her own name and the kids went on my policy as named drivers... and so on.

 

Nobody would say there is anything morally wrong with trying to get the best deal on something which is complex and can be done in many possible ways.

 

Or look at it like this, if you have a property, say a garage. You can chose whether you want to sell it to your business or rent it to your business. Both are possible and legal and both have different taxation and legal consequences.

 

What I am saying it, it's not dodgy or overly complicated, it just something which a responsible business man takes into consideration - as any other expense should be considered so too should tax.

 

If other expenses can be legally reduced without any adverse consequences so too should taxation expenses be, most especially if there is an international element to your business. And if you do not feel comfortable with such products you should take advice.

 

Anyway, we are off topic now.

[pongo]

The on thread point Wazir is that it is important that the IOM operates like everyone else in Europe - within the same systems and with similar international agreements. Or else this is a complicated and therefore expensive place to be based. That relates to the way in which we are taxed, the VAT system etc. It should be no more complicated (and therefore expensive) to operate from here than it is to be based in, say, Shetland or Cornwall.

[wazir]

The on thread point Wazir is that it is important that the IOM operates like everyone else in Europe - within the same systems and with similar international agreements. Or else this is a complicated and therefore expensive place to be based. That relates to the way in which we are taxed, the VAT system etc. It should be no more complicated (and therefore expensive) to operate from here than it is to be based in, say, Shetland or Cornwall.

Ok.

 

Well yes. If the Isle of Man raised it's taxes to be inline with the EU then the USA would remove the 30% withholding tax on dividends and royalties (or alteast you could claim a credit against it over here by potential future treaty provisions).

 

This would be good (in a way) for the royalty routers - though in fact they would be paying around 20% tax here rather than 30% tax in the US and it would be on all their income not just US sourced income.

 

But it would be worse for the vast majority of people. Also it would see off the finance sector and with it 80% of the Islands GDP. So on that topic I think if the 30% US royalty tax is bothering you then either sidestep it or live with it, because it is unfortunate, but necessary. Alas.

 

As to VAT we do operate exactly the same as the UK so there is no issue that I can see for now. Though this may change as the papers seem to suggest.

[TheBloodyNine]

The on thread point Wazir is that it is important that the IOM operates like everyone else in Europe - within the same systems and with similar international agreements. Or else this is a complicated and therefore expensive place to be based. That relates to the way in which we are taxed, the VAT system etc. It should be no more complicated (and therefore expensive) to operate from here than it is to be based in, say, Shetland or Cornwall.

 

 

However our geographic location means it will always be more expensive to run a business that involves physical goods on the island than in the vast majority of counties.

 

I would also imagine that overheads for purely electronic/etheral companies would also be higher due to higher costs of services, wages would still have to reflect the higher cost of living on the island.

 

If all our tax agreements and levels were to be inline and controlled from London then there will be no benefit, and in reality a general disadvantage, for any companies to be on island rather than in Liverpool/Manchester/any other town.

[wazir]

our geographic location means it will always be more expensive to run a business that involves physical goods on the island than in the vast majority of counties.

 

Maybe but this only accounts for a tiny fraction of the Island's GDP.

 

Even if it is more expensive then this is made up for by the reduced tax rates.

[pongo]

So anyhow. If we pay more for stuff here then presumably we pay more actual money per transaction in VAT ? Not the rate.

[wazir]

So anyhow. If we pay more for stuff here then presumably we pay more actual money per transaction in VAT ? Not the rate.

Seems logical.

[hugh janus]

Why have our leaders not seen something coming?

 

Romours were abound when VAT was dropped to 15%, but all Bell could muster while standing at his front door was 'we are all doing very well'.

 

Surely someone must have considered robbing gits coming in through the back door to plunder.

 

Planning for such an event should have been happening for years.

[bishbashbosh]

http://www.manxradio.com/newsread.aspx?id=39622

 

Well that says a whole load of absolutely nothing!!! Still not even sure whats going on?

[Albert Tatlock]

The UK will be clawing back whatever it can, that's for sure. Even friends will be getting their toes and noses stood on in the UK clamour for solving their deficit.