It's an opportunity for someone with an interest in a subject to expand on their views — views that are not necessarily shared by the staff of Isle of Man Newspapers. Today's contribution is written by Richard Murphy, the director of Tax Research LLP and tax advisor to
the TUC, who's led criticism of the Isle of Man as a financial centre

-----------

I was surprised to see the editor of iomtoday describe me as 'the blogger who has been so angry about the Isle of Man'.

And yet, on reflection he has a point. I have been angry with the Isle of Man. I admit, I didn't notice because I am angry with all secrecy jurisdictions — of which the Isle of Man is just one among 60 or so — but he had a point, so it's fair to explain why.

I don't like the term tax haven. It doesn't get us anywhere. No one knows what it means. And if it refers to a low tax rate my point is simple: if set by a democratically-elected government without intention to undermine the affairs of any other state then that's entirely acceptable to me. Each state can and should be able to decide such things for itself.

The term secrecy jurisdiction describes what I am angry about. Secrecy jurisdictions are places that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain.

That regulation is designed to undermine the legislation or regulation of another jurisdiction. To facilitate its use, secrecy jurisdictions also create a deliberate, legally-backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so. My argument is simply this: the Isle of Man is a secrecy jurisdiction.

This requires some explanation. The Isle of Man likes to claim it is an open, transparent place. And let me put it on record: it is if you're comparing yourselves to Panama, Belize, Andorra and the like.
But this is a game of 'don't pick on me — he's worse'.

And whoever thought that led anyone anywhere? This is not the game any self-respecting place wants to play, surely? And it ignores the fact that in practice the Isle of Man remains a quite extraordinarily secretive place.

It's impossible to get any meaningful data on a Manx company.
It's impossible to get any information at all on a Manx trust.

The Isle of Man is only signing Tax Information Exchange Agreements (TIEAs) with other countries — and seems to have ceased making progress on this front since achieving the internationally accepted standard of 12 such agreements, some of which in the Isle of Man's case are with laughably small jurisdictions like the Faroe Islands and Greenland.

And the Isle of Man knows — as do all tax practitioners — that TIEAs are virtually meaningless because the standard of proof required before information can be requested is ludicrously high, so the agreements will be rarely used.

As the Swiss rightly say, put this combination of facts together and it's easier to create what is in effect banking secrecy in Douglas now than it is in Zurich.

Add to that the fact that although the Isle of Man says it will fully co-operate with the European Union Savings Tax Directive in 2011, that's not magnanimous. The 35 per cent tax withholding rate will at that time neuter any benefit a tax evader will have had from it.

And anyway, at little cost, and as every bank in Douglas knows, the current Directive can be avoided using a company or trust — and I have no doubt it will be, as my work for the BBC's Panorama programme in the Channel Islands showed to be likely.

Couple that with the Isle of Man running a tax regime that I suggested — rightly — in 2005 did not comply with EU requirements because it blatantly tried to find loopholes to get round the EU Code of Conduct and the deliberate nature of the Isle of Man tax, corporate and legal structure to facilitate abuse is clear.

Does this matter? Yes, is my answer.

As small state the Isle of Man is dependent upon the existence of its large neighbour, for protection, to assist the rule of law, to provide health services, and more.

But it has, and still does, seek to undermine the rule of law in the UK, and seeks to undermine tax revenues due to the UK Government.

This is an act of aggression that is unwarranted. And it undermines the democratic process in the UK by seeking to deny an elected government with the revenues needed to fulfil its mandate.

And at the same time — and as has regrettably been proven time and again — the Isle of Man has been used to hide crime.

Some of that crime will involve developing countries. They lose their scarce revenue because secrecy jurisdictions hide it from view. That is an abuse of the poorest people on earth. That does make me angry.

Angry enough to investigate how the Isle of Man could have done all this — which is why I discovered that the Isle of Man VAT sharing agreement provided the Isle of Man with a subsidy of, I thought, £230 million a year from the UK.

The logic I used to estimate this was simple: I did a calculation remarkably similar to the one that will be used to determine the fair split in future (indeed, the new one could almost have been copied from my blog) and showed that it was impossible for the Isle of Man to rightfully earn anything like the VAT it showed as received in its national accounts.

Its national income would have needed to be almost three times higher to have achieved that outcome. So I published that fact because I could see no reason why the people of the UK should subsidise the, on average better off, people of the Isle of Man so that the Isle of Man could return the compliment by seeking to undermine UK tax revenues whilst hiding behind a veil of secrecy when doing so.

If that revelation by me and the resulting change in the VAT sharing agreement will cause real people real pain in the Isle of Man I am sorry. But don't blame me: blame your politicians who said I was not telling the truth and dismissed all my claims whilst refusing to provide any information to the Tynwald to justify their own bravado.

It is they that misled you. It is they who deceived you behind the veil of secrecy they built to protect themselves. That, unfortunately, is the Isle of Man way.

So what can be done about this? It's not for me to say how the Isle of Man should raise the tax it needs, and I won't. But I can say that the Isle of Man should comply with international requirements, and not just the letter of them, but to the spirit too.

So it should comply with the Code of Conduct. It should fully co-operate with the European Union Savings Tax Directive, and it should support and call for its extension to more types of income and more entities.

It should offer Tax Information Exchange Agreements to all who want them. It should pioneer effective and meaningful automatic information exchange so that other jurisdictions are offered information on those who live in them who use financial services in the Isle of Man.

It should require that Manx companies, and in due course trusts, place details of their beneficial ownership, their real management and their full accounts on public record.

And in doing all this the Isle of Man should say it is doing so because it believes in the operation of free markets that require open and honest competition based on the best available information to minimise risk for all participants; that it believes that tax should be paid where it is due — including when appropriate in the Isle of Man, and that criminals, including tax evaders, should have nowhere to hide.

And then, and only then, will the Isle of Man be able to justify the claim that it really is as open, honest and transparent as it claims to be now.

And for those who doubt me when I dispute the claims of your politicians, I'd remind you that those same politicians said I got the subsidy issue wrong, when I was right. They might say I'm wrong now, but the scoreline suggests I might be the one to believe.

And that means it's time for the Isle of Man to change, or sometime soon it might be forced on you anyway.

Not by me, of course. But I'm not the only man who's angry with the Isle of Man and secrecy jurisdictions in this world.

-----------

Comment on this article by emailing newsviews@newsiom.co.im