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IoM Addresses Personal Service Company Taxation

by Phillip Morton, Investors

09 August 2012

The Isle of Man government on August 6, 2012, launched a new consultation document addressing the taxation of personal service companies, to restrict their use for tax mitigation purposes.

A personal service company (PSC) is one through which services are rendered to its customers by a member/shareholder of a company or by a relative of such a person. The company will typically have few if any employees other than the sole director who owns most or all of the shares and who delivers the services. The use of a PSC may result in income tax deferral and it may also be used to reduce National Insurance contributions (NICs).

The consultation seeks feedback in relation to a draft legislative amendment proposed in the island's February budget, which clarifies when income should be treated as deriving from employment for tax purposes.

According to the consultation document, the legislation proposed by Treasury will be unique to the island but is based on the approach taken by Guernsey. Guernsey tax law states that if services covered by a PSC arrangement are provided under a contract directly between the client and the worker, and the worker would ordinarily have been regarded as an employee, then the payment for the services should be deemed to have been made to an employee.

The requirement will be on the person for whom the service is being performed to deduct income tax and NICs if the individual providing services would have been an employee but for the use of an intermediary entity. The government has underscored however that the legislation will not change the income tax position for genuine trading concerns or situations where self-employed individuals have incorporated their trade.

TAGS: individuals | Isle of Man | compliance | tax | investment | business | tax compliance | tax avoidance | fiscal policy | law | financial services | employees | international financial centres (IFC) | budget | Guernsey | offshore | legislation | tax planning | trade | services

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