ARI or the Atrribution Regime for Individuals was brought in as a way of stopping Manx residents from holding income in companies (that are taxed at zero percent). It required a distribution of profits for Manx shareholders.

The trouble is that ARI was put in place to replace the DPC (Distributed Profit Charge) after it was ruled against be the EU code of conduct group. Prior to this the Isle of Man governments rhetoric about DPC was that it was outside the scope of the OECD because it was a personal tax matter. Doesn’t that sound very similar to how they were talking about ARI right up until a couple of months ago? The message definitely doesn’t seem to have sunk in.

Perhaps more worrying for Isle of Man CSPs is that the Treasury Minister has already made a commitment to replace ARI with something similar! At what point is Europe going to get fed up with the Isle of Man’s attitude in this regard? It seems to be a clear choice of 2 options. Either something is put in place which disadvantages Manx residents (and as such will be deemed harmful) or the island gives in and introduces something which affects all shareholders equally? We all look forward to seeing what that may be.

The OECD And Zero 10 Tax

The Isle of Man was the first of the crown dependencies to implement zero 10 and in all honesty there was very little issue raised. It was checked and found to be fine. It was only then when Jersey and Guernsey wanted to compete on a level playing field that Europe started to take notice. The result of this was that Guernsey has steered in a direction looking at alternatives whilst Jersey has ploughed ahead following the IOMs lead. Because of this the OECD is now taking an active interest in Zero/10 and reviewing it for harmful effects.

It’s not looking great for these offshore jurisdictions:-

“Following that meeting, UK Treasury released a statement suggesting that the European Commission and the Code of Conduct Group had deemed the island’s new tax legislation gave rise to ‘harmful effects’.”

Earlier this month Guernsey reported such and suggested that both Jersey and the Isle of Man would need to look for an alternative corporate tax regime. This was strongly rebutted by the Treasury Minister on the Isle of Man, Anne Craine. She has insisted that the European concern only relates to the ARI element of Zero/10 (ARI ensures that residents are made to distribute profits which then become taxable as personal income). The Manx Treasury are adamant this is a personal tax issue and is beyond the remit of the Code of Conduct Group. Jersey to their credit seem to be keeping more of a watching brief.

In what could easily become a game of tit for tat it seems that the Guernsey view is closer to what the UK is looking towards with its offshore dependencies. Lord McNally was recently quoted as saying “‘We’ve not made any secret, and certainly Her Majesty’s Treasury has not made any secret that they do not think that the tax regimes pursued by Jersey and the Isle of Man are compatible.” Of course you can’t forget that the Isle of Man and Jersey are in competition with the UK in terms of attracting business. Structures such as the UK LLP are just as “beneficial” as anything to be found offshore so it’s obviously in the UK’s interest to slow their competitors as much as possible.

The big question is when the dust settles and something solid comes from all this where will it leave the Isle of Man and Jersey in terms of their corporate tax regimes and the finance industries that rely so heavily on competitive tax arrangements? Nobody can say for sure.

Large companies utilise offshore jurisdictions to maximise the profits of their shareholders whilst ensuring their prices are rock bottom for consumers. A number of supermarket chains have been critised for there methods of tax effective savings – whilst supplying their goods at reasonable costs for shoppers and employing many thousands of people within the country of sales.

Many high-tax jurisdictions such as the United Kingdom and Germany have tried to attract headquarters’ offices and functions using a concept called the ‘coordination centre’.
Originally pioneered in Belgium, it is now seen in many countries throughout the world. Essentially, the high tax country will allow a resident corporation to continue its functions outside the normal tax laws. It is then able to use functions such as cross border intra-group trading or’re-invoicing’ to escape any witholding tax or other taxes.

Taxation of coordination centres is ‘by agreement’ between the corporation and the host country,
and is usually minimal. This is one of the ways in which high-tax jurisdictions, which are nominally against low-tax areas, play the game themselves.