It is perhaps the secret nature of the deal that has fuelled claims by the Island's most ardent critics, most notably Richard Murphy of the Tax Justice Network, that it effectively provides us with a £230 million subsidy from the UK.

Mr Murphy, jubilant that we are to lose £140 million, nevertheless believes that a subsidy remains.

The Manx authorities vigorously deny that the revenue sharing arrangement ever constituted a subsidy.

Chief Minister Tony Brown said: 'It's never been a subsidy but it has been a very important agreement to the Isle of Man.'

'We've had no payments over and above what's agreed in the sharing mechanism,' Treasury Minister Allan Bell told a press conference 10 days ago.

Whether a subsidy or not, the sharing mechanism has proved a major revenue stream, contributing about £339 million each year — that's nearly 60 per cent of the government's annual income of £572 million.

VAT arrangements have been in place between the IoM and UK since the Revenue Returns Act of 1894. The 'Common Purse Agreement' was introduced in 1957.

Under what is now called the Customs and Excise Revenue Sharing Agreement, VAT receipts collected in the Isle of Man and the UK are pooled and then shared out to an agreed formula.

That formula was changed in 2007 at the instigation of the UK to a less complicated method based on the relative economic growth of the two countries.

Not all indirect taxes are pooled. Air passenger duty, lottery tax and betting duty, for instance, don't go in the pool and, with fuel duty, the Island keeps what it collects.

In May this year, Customs and Excise produced figures apparently showing that far from being subsidised by the UK, the Isle of Man had made a net contribution in each of the last two years, having contributed some £420m to the pool.

So how does an Island with a population of 80,000 collect such vast sums in VAT?

Many VAT-registered businesses based in the Isle of Man supply goods and services that are consumed off-Island — so that VAT is paid in the UK but collected here.

As is the case in the UK tax profile, the lion's share of VAT collected is due to just a few traders based in the Island.

Back in May, Customs officials insisted there would be no way the UK would agree to a mechanism that provided any form of subsidy to the Isle of Man.

It seems, however, that the UK has decided this important agreement was just too much of a good deal for the Isle of Man.

The Chief Minister stressed in Tynwald, however, that the Customs and Excise Agreement itself was not in any jeopardy and to lose it would be detrimental to manufacturing and agriculture which benefited from the lack of Customs barriers.

WHAT DO YOU THINK?
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YOUR COMMENTS

So how does an Island with a population of 80,000 collect such vast sums in VAT? Indeed a million pound question! Are the people of the island entitled to know the sharing mechanism as the Chief Minister insists it is not a subsidy? As this has now become the BIGGESST issue in the island, perhaps the people are entitled to know from their politicians they voted into office what really is the nature of this 'secret' deal??
RT

What I haven't seen mentioned anywhere is what happens to the VAT we collect. It mentions above how much we do collect, but what happens to that now? I'm assuming that we just seem to give it all to the UK Government and receive nothing in return. Why can we not just keep all the VAT that is collected?
RL

It is interesting to read that we on the Isle of Man allegedly "benefit" from the Customs Agreement, for I think I`m correct in saying that the Scottish "Government" receives a higher amount of UK spending per head of population than does England. I would hope as Mr Murphy believes in tax fairness, that he subscribes also to a fair allocation of UK Government spending as well. But with a UK election approaching, I some how feel this will not happen.
BG

I simply can't believe that the Manx Government didn't know something about this before the figures were released. If an agreement about revenue share was made in the first place, normally there is a termination agreement in place, so that parties cannot pull out unannounced. So how the hell has this happened, IOM Government please come clean, otherwise the manx public will be debating this for months to come !!
GC

This would appear to be a case of the Island having all its eggs in one basket. It was rather dangerous to have this approach given what has happened in the UK. The city of London provided as much as 30% of UK GDP, so problems were always going to be serious. Here, of course the reliance on this single stream of income is 60%, what sort of madhatter would rely so heavily on a single source like this ? I am sure most people have been becoming acutely aware of the UK's distancing of the IOM (such as the reciprocal healthcare cutting), surely all those great economists in the Government had some sense of what was happening - which begs the question, were they incompetent, resting on their fat laurels, or were they really in the know ? Given what has happened, the first jobs to go should be theirs !
JC

Transparency should be the key in this case. Until Manx-resident voters and taxpayers are treated as adults and allowed to know all the facts about the revenue sharing arrangements, we cannot be in a position to understand them and to voice our opinions to our elected representatives. Personally, I think that the writing has been on the wall for some time, and that the UK (in cahoots with the EU) is determined irrevocably to damage the economies of the offshore islands and then drag them back into its suffocating arms. I consider that we should abrogate as soon as possible, despite the inconvenience of customs barriers; Jersey and Guernsey seem able to cope with them easily enough. (Incidentally, who is this smug, self-satisfied looking Mr Murphy, and what qualifies him to pontificate on our situation?)
GP

Referring not only to the Customs deal but also the cessation of the NHS agreement and various other declarations of intention to discriminate against the business of the Island, it is becoming increasingly apparant that the UK Government is determined to make savings at our expense. This is despite the fact that any finance we could provide would be a small drop in the ocean when considering the badly managed and wasteful finances of the adjacent island. Shouldn't we be looking at other options away from any agreements with this increasingly discriminatory government.
ANON