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IoM Intends No Tax On Capital Gains

by Jason Gorringe,, London

01 March 2012

The Isle of Man has no intention of introducing taxes on capital gains, the island's Treasury Minister, Eddie Teare has confirmed, clarifying the situation following the removal of the island's deemed distribution regime.

Following an investigation by the European Union Code of Conduct Group on Business Taxation, the Isle of Man agreed to remove its Attribution Regime for Individuals from April 2012 to ensure that the territory meets international standards.

Teare said that the abolition of the attribution regime had removed provisions deemed 'harmful', allowing the territory to retain its zero/ten corporate tax regime. Due to the changes, company profits can only be taxed when paid out as dividends received by Isle of Man shareholders rather than on a deemed distribution basis, ie. with tax chargeable regardless of whether a distribution is made, based on the shareholders' cut of the company's profits in a given year.

Teare said that, to combat tax avoidance as a result of the regime's removal, Practice Note 174/12 was released to outline changes to make more strict the tax treatment of an income distribution to prevent individuals from employing tax planning to avoid the payment of income taxes. However the government has clarified that, contrary to erroneous reports, a charge to income tax will not arise to shareholders when capital gains made by a company are distributed.

Teare said: "It has come to my attention that unacceptable tax planning was being contemplated and I had to take steps to ensure that tax due on income, not capital gains, was paid. This is not an attempt to introduce a form of capital gains tax; nothing is further from my mind,” the minister confirmed.

The Isle of Man's attribution regime was introduced in 2008 under The Income Tax (Attributed Profits) Temporary Taxation Order 2007 (Statutory Document 928/07), following approval by the island's legislative assembly the Tynwald in December 2007.

The removal of the regime was announced in Budget 2011, and is effective from April 2012.

TAGS: individuals | Isle of Man | tax | investment | business | tax avoidance | fiscal policy | law | international financial centres (IFC) | corporation tax | offshore | tax planning | dividends | standards | regulation | individual income tax

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