KSF IOM Depositors' Tax Liability Practice Note Released

by Phillip Morton, Investors Offshore.com

07 October 2009

The Isle of Man government has released a practice note in relation to tax owed by depositors of Kaupthing Singer and Friedlander (IOM) Ltd, which went into provisional liquidation on October 9, 2008, for reference by depositors and their agents.

The practice note pertains to the tax treatment of interest credited to KSF accounts on or after April 6, 2008. In law, all interest credited to an Isle of Man resident taxpayer’s bank must be declared on that person’s income tax return for the year in which the interest was credited and is taxable as income for that year. This means that a KSF depositor, who, for example, had interest credited to their KSF account on October 9, 2008, must declare that interest on their tax return for the year ending April 5, 2009, even though the interest may still form part of an outstanding claim under the Depositors’ Compensation Scheme (DCS) or against KSF.

The IOM treasury has, however, acknowledged that taxing all interest income credited to a KSF account since April 6, 2008, as income for the next year ended April 5, 2009, could lead to hardship.

The IOM treasury is offering a concession in respect of interest which was credited to a KSF depositor’s KSF account on or after April 6, 2008. Nevertheless, all interest credited to KSF accounts, including interest which is still owed, must be declared on the KSF depositor’s income tax return in the normal way.

The interest will be charged to income tax, but a KSF depositor may apply to the Income Tax Division to defer payment of the tax on that interest. According to the Treasury, this postponement of tax will only be available in respect of the tax due on the interest credited to an account which was open and had a credit balance immediately before KSF went into provisional liquidation on October 9, 2008.

This concession only applies in respect of interest which was credited to a KSF depositor’s KSF account on or after the April 6, 2008.

All interest credited to KSF accounts, including interest which is still owed, must be declared on the KSF depositor’s income tax return in the normal way.

The income tax postponed under the concession will become due and payable 30 days after the KSF depositor receives final payment of amounts owed to him by KSF (whether under the DCS or otherwise) if the full amount of capital and interest owed to the KSF Depositor has been paid. If part or all of the interest which is due to the KSF depositor is not ultimately paid under the DCS (or otherwise), the income tax due on the unpaid amount will be waived.

For the purposes of this concession, any payments to KSF depositors will be treated as being capital first and interest last.

Income tax legislation provides for an interest charge on any tax that is paid late. Interest is normally due whether or not a postponement has been agreed with the Assessor. However this concession will ensure that an interest charge will not arise if the income tax due is paid within 30 days of the final payment being received under the DCS.

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