The Isle of Man has repealed a piece of legislation that aims to stop locals avoid personal income tax amid concerns the European Union was going to declare it “harmful”.
The attribution regime for individuals was intended to stop local shareholders rolling up income in local companies subject to the 0 per cent corporate tax rate to avoid paying the 10 or 20 per cent personal income tax rate.
Jersey has also repealed a similar piece of legislation this morning – deemed distribution rules – for the same reason.
The move was announced in the Isle of Man’s Budget today and Treasury Minister Anne Craine says she hopes this means the end of concerns from Europe.
She says: “The Isle of Man Government considers that with the removal of the ARI, our business taxation system does not have features which can be considered harmful.”
AES International managing director Sam Instone says: “The reason for the ARI was that locals were forming companies, rolling up their income into the company and then taking 0 per cent tax free income as dividends. The ARI was meant to stop that but it meant local people were not allowed to do what offshore businesses were, and this unlevel playing field is what the EU are unhappy about.”
The Island’s government had been waiting for a report from the European Union Council High Level Working Party on tax issues to see if the ARI fell within the EU’s code of conduct on business taxation. The code is not legally binding and the Isle of Man engages with it voluntarily.
Today, the working party told the Economic and Financial Affairs Council the ARI does fall within the remit of the code.
The code of conduct group is due to meet this week to discuss the ARI measure on the Isle of Man and the deemed distribution rules on Jersey.
Craine said the move should end the group’s concern over the Island’s zero-ten tax regime in which corporate income tax is 0 per cent, except for the banking sector where it is 10 per cent.