Isle of Man drops withholding tax option

Holders of bank accounts in the Isle of Man will soon be obliged to disclose their offshore income, following the decision by the crown dependency to move to an automatic exchange of information within the EU.

The major new tax policy will take effect from 1 July 2011, when the withholding tax option, currently available by virtue of the transitional arrangements under the EU savings directive (EUSD) framework, will be abolished.

The announcement of the move – made by Isle of Man treasury minister Alan Bell at the Organisation for Economic Co-operation and Development (OECD) forum in Paris – was welcomed by HM Treasury.

‘This will enhance transparency and help ensure that tax is paid where it is due. We encourage all jurisdictions that apply the transitional withholding tax to move to exchange of information as soon as possible,’ said financial secretary Stephen Timms.

At the G20 summit earlier this year, the Isle of Man was benchmarked by the OECD as having achieved the ‘white list’ status of a country that has substantially met international standards of tax transparency and co-operation.

RBC Wealth Management tax director Louise Somerset remarked that the crown dependency’s latest development will have no effect on the huge majority of UK taxpayers, who have long dealt openly with HMRC.

‘It will, however, enhance the chances of HMRC [in] identifying taxpayers who have not yet disclosed their offshore accounts, and [it] may encourage errant taxpayers to take advantage of [the forthcoming New Disclosure Opportunity],’ said Ms Somerset.

She added: ‘One category of taxpayer who may be affected… is the individual who is resident but not domiciled in the UK, and who is opting to be taxed in the UK on the remittance basis. 

‘While the changes proposed by the Isle of Man will make no difference to their tax liability, many individuals from politically unstable jurisdictions are anxious to preserve their privacy and may choose to invest in other jurisdictions where the application of the EUSD is more tailored to the specific obligations of the taxpayer.’

‘It will be interesting to see whether other jurisdictions that currently apply the EUSD follow this move.’

Issue: 4212 / Categories: News , Isle of Man