Manx Financial Regulator Considers Changes To Tax Exempt Company Laws

by Mandy Robinson, Tax-News.com, London

13 June 2001

According to reports from the Isle of Man press, the Island has experienced a sharp decline in the number of company formations of about 40 per cent in the last six years and this has led the government to look into ways of establishing an alternative to the tax exempt company.

It is expected that the Isle of Man Financial Supervision Commission (FSC) will undertake a feasibility study of the reform of corporate legislation. Jane Bates, head of companies supervision at the FSC told the Isle of Man Online news service: 'I am hoping to set up a working party in the near future to consider the issue,' and added that an assessor from the Income Tax division is 'looking very actively at an alternative to exempt companies.'

Ms Bates said the decline could be attributed to the controversy surrounding the OECD 'harmful tax competition' initiative which has deterred some companies from locating offshore. In response, a senior bank official was quoted by the IOM Online news service as saying: 'That would be a fair argument were the problem applicable to all financial service centres. There has been a noticeable move by existing businesses from the Isle of Man to Gibraltar in the last six months. We need to find another way to make ourselves competitive.' He added that recent wage inflation on the Island could not allow it to keep trading on its reputation as a 'low-cost' centre, particularly when compared with the Island's Crown Dependency counterparts, Jersey and Guernsey.

The number of incorporations fell in Jersey over the previous six year period by a comparatively small 8.25 per cent during which time Guernsey had reported a 19 per cent increase. Indeed, other jurisdictions have enjoyed a huge increase such as the Bahamas with almost a 90 per cent growth rate, Gibraltar with 53.4 per cent and the British Virgin Islands with a 56.45 per cent increase.

Paul Beckett, a director of Mann & Partners attorneys, claimed that the decline in incorporations appeared to reflect the increase in the number of companies that were struck-off. 'The question has been raised whether business is being driven away because clients fear a climate of over regulation. The FSC plays a vital background role. An emphasis needs, however, to be placed on the liberal commercial business climate which exists in the Isle of Man…. As long as the FSC continues quietly to take out the bad guys it will be doing the Island a very considerable service,' said Mr Beckett.

He added: 'The Isle of Man needs to encourage long-term commitment on the part of those forming companies here and this is perhaps reflected best in the stated intention of the Treasury to reduce resident taxation of company profits to 10 per cent within the next year or so. Although the Isle of Man must never be complacent, perhaps comparisons made with countries such as the BVI and the Cayman Islands, which would hardly have reason to exist in financial terms if there were no finance sector present, are misleading.'

According to Ms Bates, any legislative changes will be agreed through joint consultations between industry players and the government said it could be up to two years before new legislation is in place. She said: 'It's not an issue that can be dealt with quickly. Quick-fix solutions can be very dangerous.'

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