Signing of a long-awaited automatic tax information exchange deal with the UK has been welcomed by an Isle of Man-based tax expert.
But the deal will mean a significant layer of extra administration for island financial services businesses who now need to be able pin down precisely what extra compliance costs are required.
That’s the view of Phillip Dearden, director of BDO (Isle of Man) who said he expected a similar FATCA deal with the US will follow shortly.
He said: ‘It is good news that the UK IGA is now signed.
‘Whilst very few businesses welcome extra levels of regulation, we have been aware for some time that it is coming and now need to pin down exactly what is required.
‘No-one can plan in detail until we see the local legislation and guidance that will apply on the island.
‘Hopefully, the completion of the UK intergovernmental agreement gets us a bit closer to that detailed information that businesses need in order to prepare themselves for the extra administration they will have to undertake.
‘I don’t think we are there yet as the IOM still has to complete an IGA with the US, I doubt the UK agreement would have been completed if the terms of the US agreement had not been determined so I suspect and hope that the second IGA will follow shortly.
‘We will then need detailed local legislation and I suspect Treasury will also issue guidance notes to assist businesses in understanding exactly what is required.’
The UK’s Chancellor of the Exchequer, George Osborne, last week hailed a ‘momentous step forward in tax transparency’ when the Isle of Man became the first British dependency to sign an agreement with the UK on automatic sharing of tax information.
Chief Minister Allan Bell described the signing of the deal as ‘world leading’ and said it would ‘once and for all’ rid us of the ‘outdated name of tax haven’.
Mr Dearden said the main aim of both UK and US FATCA is to provide information regarding income earned by US and UK resident taxpayers that they are not disclosing.
But he added: ‘I suspect there is very little business of this nature on the Isle of Man.
‘If I am right, the main effect of FATCA will be to produce a significant extra layer of administration for both financial services businesses and for the Isle of Man Treasury which will have to collate significant information for onward transmission to the UK and US tax administrations.’
Signing of the FATCA deal had won praise even from the sternest of tax haven critics.
Richard Murphy of the Tax Justice Network said: ‘These deals are not perfect. But they’re a major step forward.
‘Campaigning against tax havens has worked. But let’s be clear, we still have a long way to go. Including with the Isle of Man.’
Mr Murphy said the Isle of Man had secured a PR advantage by being the first to sign. But he added: ‘It is progress – and if we only ever refused to recognise that we’d get nowhere
‘I have massive criticisms left – of course – but son of FATCA is better than nothing.’
Speaking following a meeting of the IMF and G20 finance ministers in Washington last Friday. Mr Osborne said he hoped other jurisdictions would follow our lead as soon as possible.
He said: ‘The agreement we have now signed with the Isle of Man is a momentous step forward in tax transparency, showing that when we work together we can push the international agenda forward.’
What is FATCA?
Late last year the Manx government announced it was negotiating with the US to implement its Foreign Account Tax Compliance Act and was committed to become the first nation to sign a FATCA-style deal with the UK.
Under these FATCA arrangements, automatic exchange will cover details of all account holders, including those whose identities might otherwise be hidden by trusts or companies.
It is likely to become a global standard and the UK Treasury said the net was closing in on those wanting to hide their money offshore.
We have automatically shared personal bank account information with EU member states since July 2011, being one of the first non-EU countries to do so.