IoM Publishes Guidance Notes On Attribution Regime For Individuals

by Jason Gorringe, Tax-News.com, London

08 August 2008

The Isle of Man's Income Tax Division has published a set of guidance notes to accompany its Attribution Regime for Individuals.

The guide contains information on all aspects of the Attribution Regime for Individuals (ARI).

The ARI will apply to all individuals resident in the Island with an interest in a relevant company for accounting periods commencing on or after 6 April 2008.

The Income Tax (Attributed Profits) Temporary Taxation Order 2007 (Statutory Document 928/07) was approved by Tynwald in December 2007. This introduces the necessary legislation for the new regime.

The Temporary Taxation Order for the ARI is also supported by a number of regulations and orders which were approved by Tynwald in May 2008.

The ARI applies to all resident individuals with an interest in a relevant company. This is a new charging provision and will include individuals in their capacity as trustees for certain trusts resident in the Island.

Resident individuals with an interest in a relevant company will be charged to income tax on their share of the attributed profits from that company.

This will, in essence, remove the corporate veil for income tax purposes as individuals will be taxed directly as if they had received the income attributable to their share of the annual profits of a relevant company; this is known as the attributed income.

When dividends are paid from those annual profits which have been subject to ARI, they will be free of tax.

A company that is:-

1. resident for income tax purposes in the Island;
2. incorporated, established or constituted under the law of the Island; or
3. registered under Part XI of the Companies Act 1931,

is a relevant company for the purposes of the ARI unless it falls within one or more of the categories detailed in the Income Tax (Attributable Profits) (Relevant Company) Order 2008, (Statutory Document 240/08) for the whole of the accounting period.

These categories are:-

1. a company the whole of whose income is exempt under section 15 of the 1970 Act, (being a company established for charitable purposes only or to repair any college, church, chapel or any building used solely for the purpose of public worship, or receiving income from any property of Her Majesty in whatever name or names the same may vest or stand) or a company wholly owned by such a company;
2. an “agricultural society”, being a society or institution established for the purposes of promoting the interests of agriculture, horticulture, livestock breeding or forestry;
3. the Isle of Man Agricultural Marketing Society;
4. a friendly society whose income would be exempt from income tax under Section 18 of the 1970 Act;
5. a public Board or authority constituted under any enactment or under any order approved by Tynwald under any enactment, and of any local authority;
6. a pension scheme approved under section 49 of the 1970 Act, the Income Tax (Retirement Benefit Schemes) Act 1978 or section 2 of the Income Tax Act 1989;
7. a company that is licensed by the Financial Supervision Commission under the Banking Act 1998;
8. a company that is registered under the Industrial and Building Societies Act 1892 or authorised under the Building Societies Act 1986.
9. a company that is a company limited by guarantee and where the members of that company cannot benefit from any distribution made by the company at any time;
10. a members’ club or association where the members of the club or association cannot at any time benefit from a distribution;
11. a company that pays Isle of Man income tax at more than the standard rate on the whole of its profits under the Income Tax (Rates of Income Tax) (Resident and Non Resident Corporate Taxpayers) Order 2006 (Statutory Document 224/06); or
12. a company that is listed on a recognised stock exchange.

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