- A written reply by the Treasury Minister to a parliamentary question by Lawrie Hooper MHK in June 2017 revealed the total profits earned by all Manx companies wholly-owned by Manx residents in 2015-16 (the latest available). It is £542m. If these profits were taxed at 20%, that would be an extra £108m for the Manx Government. The number of such wholly-owned companies was 7,321 – about one-quarter of all companies registered here:
- Of course, ordinary employees and pensioners pay their income tax, but the more wealthy can roll up all their income – fees, dividends, rents, interest – in their company, year after year, being taxed (as an individual) only on the dividend or drawings they may take out to live on. The company can be sold at any stage, preventing that income from ever being taxed. The capital gain on the company’s sale is not taxed either, there being no capital gains tax on the IoM.
- This grossly unfair situation has come about because in 2012 the EU Code of Conduct Group looked into the taxation of companies here and ruled that all companies, whether owned by Manx residents or by others, must pay the same level of tax – there can be no discrimination. Prior to 2012 the Isle of Man had levied an ‘Attribution Regime for Individuals’ (ARI) on the profits of Manx companies, alongside a 0% rate for almost all* non-Manx companies – but the EU Code of Conduct Group ruled that ARI was a tax in all but name, and that it had to go. The IoM duly complied by deciding that all companies – including Manx-owned – would henceforth be taxed at 0%, giving rise to a domestic tax-free holiday through incorporation, for those who can afford it.
* A small number of companies – banks and large UK-owned retailers – are taxed at 10%.
Phil Craine, September 2017