Review Of Business Taxation System

[manshimajin]

Are not the BVI tied to the UK in much the way we are i.e. governor, queen etc? Can the EU/UK not put just as much pressure on them as us, if push comes to shove - given their constitutional relationship?

No doubt they will look into this when they gain "a far more comprehensive understanding of the business tax systems in the EU and the major trends in EU-wide tax policy".

[Albert Tatlock]

Are not the BVI tied to the UK in much the way we are i.e. governor, queen etc? Can the EU/UK not put just as much pressure on them as us, if push comes to shove - given their constitutional relationship?

No doubt they will look into this when they gain "a far more comprehensive understanding of the business tax systems in the EU and the major trends in EU-wide tax policy".

This is what I was meaning when we were discussing the budget and we were guessing about would be in it, when I said there might be a 'coordinated approach' to CT. Such an approach (all offshores bringing it in at an agreed level at once) would make sense for all the offshores, as it would still leave behind a relatively level playing field, albeit one 'not as significantly' advantaged to mainland Europe.

 

However, there are far more offshores in the world other than those belonging to the EU and countries within it of course, including the U.S. itself effectively. Surely there has to be a compromise available, which keeps the EU/UK happy and offshore money flowing through London/Frankfurt etc. on the European continent?

 

Are any of these 'consultations' happening in offshores anywhere else, and, what discussions are being held this year between the offshores?

[Twitch]

Interesting thread this, thanks for the responses to my query earlier.

 

If IOM is 'forced' to eventually implement a CT, what is to stop it simply giving a full rebate back to the company after the end of the tax year?

[oldmanxfella]

Consultation document at

http://www.gov.im/lib/docs/treasury/incometax/consultations/iombusinesstaxsystemreview.pdf

 

The Isle of Man Treasury will reap what it sewed on this one. It effectively pushed the Channel Islands down the route of 0/10 to 'compete' as we were riding on a wave of cash provided by the UK Government. It forced the CI's into a corner on business taxation as the IoM didn't really have to carry the cost of 0/10 (in effect the UK Government carried the cost by subsidising any fall in direct taxes through the VAT share). Now that VAT cash is gone - without it we could never afford 0/10 and the Channel Islands have known all along that they can't really afford 0/10 either.

 

Now they'll either shag us up the arse and stick to 0/10 in an attempt to destabilise our economy further, or we'll all breathe a collective sigh of relief and agree to go to 10% across the board and businesses will stay put in each location.

 

I don't think IOMG have any other options as they created this mess with a race to the bottom on business taxation that was paid for by other people.

[TurricanII]

Can anyone who knows about these things advise whether the IOM could strike up a more mutually beneficial common purse agreement with one of the other EU member states and then cancel the UK agreement?

[Tugger]

If a company is incorporated over here as an asset holding vehicle, and we move to 10 per cent tax, it will redomicile to the BVI, regardless of what the Channel Islands are doing, if the BVI does not impose tax. There won't be a "collective sigh of relief" unless all the offshores are forced to harmonise - there will, instead, be unemployment on a scale that few of us remember

[Tugger]

Are not the BVI tied to the UK in much the way we are i.e. governor, queen etc? Can the EU/UK not put just as much pressure on them as us, if push comes to shove - given their constitutional relationship?

 

I think so, more or less, but I am not quite sure what the difference is between a crown dependency and an overseas territory, constitutionally. It might be important, I just don't know.

 

The other flies in the ointment are those places which are able to withstand untold amounts of outside pressure (Hong Kong and Macau, unless the PRC plays ball), and the offshores that are entirely independent (Mauritius being the prime example)

[Albert Tatlock]

If a company is incorporated over here as an asset holding vehicle, and we move to 10 per cent tax, it will redomicile to the BVI, regardless of what the Channel Islands are doing, if the BVI does not impose tax. There won't be a "collective sigh of relief" unless all the offshores are forced to harmonise - there will, instead, be unemployment on a scale that few of us remember

I agree, though I can see that if there is, say, an EU/UK 'inevitability' about CT, and this is handled properly and a level playing field is maintained - and our government rightly holds back implementation until that pressure is applied equally across all of the offshores and a coordinated approach is taken - then that would be a more sensible way forward. We shouldn't be the first to simply lie down and get our tummies tickled, without the BVI doing the same at the same time.

 

I suspect there is more UK control/influence over the BVI than is made out sometimes. However, that does not necessarily negate the likes of the BVI from becoming independent - though with a population 1/4 of our own I somehow think that unlikely.

 

If IOM is 'forced' to eventually implement a CT, what is to stop it simply giving a full rebate back to the company after the end of the tax year?

That would be too obvious and wouldn't stand up to EU/UK scruitiny I suspect...however...there are more ways of skinning a cat...in the sense that money can be returned to companies within the economy via: grants, premises, rewards for encouraging employment, training, apprenticeships, development, expansion etc. etc. Whilst CT might be an eventual 'requirement', how we administer our own finances is far more wooly an arena and down to our own elected representitives.

[pongo]

If a company is incorporated over here as an asset holding vehicle, and we move to 10 per cent tax, it will redomicile to the BVI, regardless of what the Channel Islands are doing, if the BVI does not impose tax. There won't be a "collective sigh of relief" unless all the offshores are forced to harmonise - there will, instead, be unemployment on a scale that few of us remember

 

Roughly how many people have been employed into that sector since it went to zero relatively recently ?

 

What would all those people have been doing before that change was introduced relatively recently ?

 

I do not accept these doomsday scenarios provided that change is implemented gradually. Since as a sector shrinks, people inevitably find and/or create new opportunities for themselves. Allowing the economy to downsize over time makes sense even as a political / economic policy for a stronger future since a smaller economy employing fewer people is going to be more sustainable long term.

 

I suspect...however...there are more ways of skinning a cat...in the sense that money can be returned to companies within the economy via: grants, premises, rewards for encouraging employment, training, apprenticeships, development, expansion etc. etc.

 

Yes the island ultimately needs more businesses which do their real income generating work here.

[Slim]

Interesting thread this, thanks for the responses to my query earlier.

 

If IOM is 'forced' to eventually implement a CT, what is to stop it simply giving a full rebate back to the company after the end of the tax year?

 

It's an alternative to zero/10 that was tried in some countries. It's in a similar situation as far as I know, working but not quite approved.

[P.K.]

Are not the BVI tied to the UK in much the way we are i.e. governor, queen etc? Can the EU/UK not put just as much pressure on them as us, if push comes to shove - given their constitutional relationship?

No doubt they will look into this when they gain "a far more comprehensive understanding of the business tax systems in the EU and the major trends in EU-wide tax policy".

This is what I was meaning when we were discussing the budget and we were guessing about would be in it, when I said there might be a 'coordinated approach' to CT. Such an approach (all offshores bringing it in at an agreed level at once) would make sense for all the offshores, as it would still leave behind a relatively level playing field, albeit one 'not as significantly' advantaged to mainland Europe.

Face it, the only thing keeping the asset shells here is zero / ten. It's NOT a critical mass of local skilled labour as they're run effectively by a bunch of clerks. Add one penny onto their tax bill and they'll be gone to anywhere else that's cheaper. Speculation on where they might end up is a complete and utter waste of bandwidth, the important bit being that their IOM staff will be left high and dry (and unemployed).

 

But I wonder what this sector is actually worth? If their only contribution to the economy is in their staff salaries then it wouldn't be that difficult to measure. Put a value on it and then you can actually work out what is worth doing via CT and zero / ten. It's called "Management By Fact". A methodology very rarely deployed by Tynpotwald.

[Lost Login]

Roughly how many people have been employed into that sector since it went to zero relatively recently ?

 

What would all those people have been doing before that change was introduced relatively recently ?

 

I do not accept these doomsday scenarios provided that change is implemented gradually. Since as a sector shrinks, people inevitably find and/or create new opportunities for themselves. Allowing the economy to downsize over time makes sense even as a political / economic policy for a stronger future since a smaller economy employing fewer people is going to be more sustainable long term.

 

You do not accept because you do not understand as is made patently clear from your first question. 0/10 may be recent but it was introduced to ensure that all companies that had been previously exempy from Income Tax remain so, i.e most of the offshore industry.

 

In reality most of the offshore industry and those employed in it are in the IoM beacuse 30 years ago the IoM stopped taxing certain compaies. If we went to a tax rate tomorrow not all would go immediately, holding companys with no income, UK property Holdings who could offset UK taxation but probably 30% to 50% would and you would see a decline in the remainder over time as the IoM would be off the raider. A reduced offshore industry means less work for lawyers, less deposits at the banks so staff laid off here as well as those who directly working in the offshoe industry. That in turn means less money spent in local shops and business so some will close down, lay off staff. Which means less tax into the system so higher tax rates, government redundancies and the circle will keep going.

[John Wright]

I am surprised at the doom and gloom. The position refelects a fact of life. Our windows of opportunity have changed regularly since we really started on the tax haven game in 1961

 

The EU big brother will make other nearby states, especially micro states seen as tax havens, comply strictly with its tax proposal by deeming them harmful

 

It has less power to do this to Onshore EU members surprisingly, it is the weakness of a. our small size and b. not being in the club and c. the size and importance of the tax avi oiding staus of financial centers like London and Luxembourg. even Malta, Cyprus and Gibraltar

 

However this is an opportunity, not a threat. All we have to do is look at it logically

 

Apart from its direct taxation of individuals and its business taxation which are low, and its lack of capital gains and inheritance or capital taxes the IOM is a high tax territory, VAT and NI. Social taxes such as NI are running at nearly 25% between employer and employee

 

We need extra income following the VAT sharing changes

 

We are going to have to comply with EU and OECD models of accepatability and they will change from time to time

 

We cannot be made to collect more tax than we need to cover out expenditure, come what may

 

We need to negotiate in to the EU as soon as possible

 

At the same time we review and change how we raise our income to pay our expenditure

 

1. I suspect we will have 20% VAT within 12 months so that means small part of the hole will be plugged maybe as much as £20 million

 

2. Even with reciprocity of benefits we do not have to collect all NHS and benefit funding and pensions via NI contributions at the same rate as the UK, we could use other taxation to pay into the fund at the appropriate rate

 

3. We introduce CT at the lowest possible bands

 

4. We significantly reduce NI, especially employers NI, amd review interplay of all taxation and NI etc. This should have a good effect on employment

 

5. We have EHIC if we ae in EU

 

6. We have an expanded marketplace for services throughout the EU instead of just UK we should be able to identify the next thing

 

Downsides

 

in EU, it needs changing to be democratic, there will be some expense involved in being in EU. we will have to abandon work permits and residency control, we will need to build extra housing if its sucessful

 

Upsides

 

we will be at the table, in the club, have a voice. We will gain rightst of establishment and residence and work and also EHIC in UK as well as EU. If things go pear shaped we will be given assistance . There will be garnst for outr language and culture. We expand our domestic market in services from 60,000,000 to nearer 500,000.000

[Albert Tatlock]

But I wonder what this sector is actually worth? If their only contribution to the economy is in their staff salaries then it wouldn't be that difficult to measure. Put a value on it and then you can actually work out what is worth doing via CT and zero / ten. It's called "Management By Fact". A methodology very rarely deployed by Tynpotwald.

There is a current value on it. A cost of £15K per annum to the tax payer per person unemployed - Alan Bell's own figure.

 

1000 people currently = £15M through a loss of: income tax, VAT, plus payment of benefits.

 

Of course that is based on the model we operate now - a See-Saw currently finely balancing: (government income minus government spending), with effectively the economically active population. The government has expanded according to Parkinson's second law i.e. "expenditures rise to meet income". If we don't downsize the government model, and say, if a sector/sector area employing 3000 leaves along with say 2000 workers, the actual losses to each remaining tax payer will rapidly escalate if that sector/sector area leaves 1000 unemployed locals behind and is not replaced by another sector/sector area.

[Utah 01]

And to add a further question to Albert's: Luxembourg and Malta are oft quoted as successful and thriving financial centres yet dwell within the EU and have, from the list above, tax rates significantly higher than ours. So would the financial gurus please explain what makes them so attractive.