UK Govt Hits IoM Revenues With Revised VAT Agreement

by Jason Gorringe, Tax-News.com, London

22 October 2009

The UK government’s decision to revise a VAT sharing agreement it holds with the Isle of Man could reduce the territory’s revenues by some GBP100m for the tax year from April 2010. Discussing the UK’s decision in the Isle of Man’s parliament, the Tynwald, the Isle of Man’s Chief Minister, Tony Brown, whilst acknowledging that it would have “serious implications,” insisted that public finances are not at crisis point.

The revised VAT sharing agreement, which has been signed, will reduce the island's apportionment of revenue that it shares with the UK, reducing the island's tax take for 2010 by GBP50m, and GBP100m for the 12 months after its implementation, to April 2011. The Isle of Man government anticipates that it will lose GBP140m a year thereafter. Net government revenue for the year to March 31, 2009, according to figures released on October 20, amounted to GBP599m. Currently, more than half of the island’s revenue (around GBP350m) is generated from the indirect taxation revenue it shares with the UK.

Delivering a statement to the Tynwald, Brown said: "This situation is clearly extremely serious for the island and unprecedented in our recent history. I am however confident that we will come through this present situation, albeit at times it will be extremely difficult for us all. Some very difficult decisions will have to be made, especially over the coming months and for some time into the future."

The revelation is a double tax bombshell for the territory after it began discussions with the UK last week on revising its corporation tax regime, along with Jersey and Guernsey. With the views of EU Member States evolving as a result of recent re-evaluation of low tax jurisdictions’ compliance with various international standards, particularly on transparency, the Crown Dependencies’ zero-ten tax regimes have come under scrutiny from the EU Code Group, which is due to present its findings on whether their tax systems are compliant with the EU Code of Conduct on Business Taxation.

These revelations have landed the Isle of Man with tough decisions on cutting expenditure to offset the effects on revenue of next April’s new VAT sharing agreement, and will force the territory to consider a comprehensive review of its tax system as a whole.

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