Recently there has been much press speculation about the future of the Isle of Man as a viable financial centre. This has been motivated primarily by international initiatives targeted at so called ‘tax havens’ and ‘harmful tax measures’.
It appears that such speculation may be formulated in ignorance of the island’s legal and regulatory infrastructure, taking little or no account of its constitutional position.
Many commentators may misunderstand the relationship between the Isle of Man, the UK and the European Union (EU). While the Isle of Man is a Crown dependency, geographically situated within the British Isles and acknowledges the Queen as its head of state, it is not part of the UK. The UK’s responsibility in respect of the island relates only to foreign affairs, defence and “good government”. Moreover, although Protocol 3 to the Act of Accession annexed to the Treaty of Accession 1972 (by virtue of which the UK became a member of the EU) extends certain EU provisions in respect of the free movement of agricultural and industrial goods to the Isle of Man, the Isle of Man is not a member of the EU.
In considering the position of the Isle of Man and the challenges facing it, it is important to appreciate that the island is not (legally or de facto) simply a satellite of the UK or the EU.
The Isle of Man is facing potential challenges from various quarters related to its perceived status as a tax haven. Such challenges take the form of international initiatives, several of which are aimed at eliminating harmful tax competition. The principal initiatives relevant to the Isle of Man, and the position that the Manx Government is understood to be adopting in respect of them, are as follows:
OECD Report on Harmful Tax
Competition
In April 1998 the Organisation for Economic Co-operation and Development (OECD) issued The OECD Report on Harmful Tax Competition (the ‘OECD Report’), which was endorsed by 27 of the 29 members of the OECD (Switzerland and Luxembourg refused). The OECD Report, inter alia, focuses on financial services, particularly offshore services, and targets what it calls ‘tax havens’.
The Isle of Man Government has made a submission to the OECD that it should not be categorised as a tax haven. The OECD is due to finalise its classifications in November. While the OECD Report is not binding on its member countries, it is likely to be influential in determining members’ tax policies. Moreover, the fact that the Isle of Man is a member of the OECD is likely to make any adverse finding in respect of the Isle of Man difficult to dismiss without debate.
