Memorandum from the Isle of Man Chamber
1.1 The Isle of Man Chamber of Commerce
is pleased to make this submission to the House of Commons Treasury
Committee in respect of its inquiry into Offshore Financial Centres.
We welcome the opportunity to respond to the Committee's inquiries
in respect of the Isle of Man. We will be pleased to address any
questions that might arise; contact details are given below.
2. THE ISLE
2.1 The Isle of Man Chamber of Commerce
has a diverse membership, representing all sectors of the Isle
of Man's economy, including finance, manufacturing, information
technology, hospitality and leisure, transport, construction and
2.2 The chamber was established in 1956
and currently has 360 members.
2.3 The Isle of Man Chamber of Commerce
is affiliated to the British Chambers of Commerce ("BCC").
3.1 It would be helpful to understand the
mandate and scope of this inquiry, particularly in the context
of other reviews of the Island such as the Edwards Report (1998),
reviews undertaken by OECD and the Financial Stability Forum,
the most recent IMF visit in 2003 and the forthcoming visit of
the IMF in September 2008.
3.2 It would also be helpful to know whether
the inquiry relates only to the British centres (ie the Crown
Dependencies and the Overseas Territories) or more widely.
3.3 We suggest it is important to define
the expression "offshore financial centre" ("OFC"),
so that it might be better understood in the context of the global
economy. We are aware that the Committee has used the definition
proposed by Zorom
(IMF Working Paper 07/87"Concept
of Offshore Financial Centers: In Search of an Operational Definition").
We consider this succinct, useful and serviceable, but the Committee
should be aware that other definitions are in circulation.
3.4 It should also be recognised that an
OFC need not necessarily be physically "offshore". Indeed,
the Financial Stability Forum in their April 2000 report (cited
above) commented that "while OFCs are commonly perceived
to be small island states, a number of advanced countries have
succeeded in attracting very large concentrations of non-resident
business by offering economic incentives either throughout their
jurisdiction or in special economic zones".
3.5 Some reports include the UK within the
list of countries which are defined as OFCs. These include the
IMF Background Paper "Offshore Financial Centres" published
and Zoromé's Working Paper cited above.
3.6 Thus the defining characteristics of
an OFC are not necessarily restricted to relatively small island
territories. Major Nation states such as the USA, UK, Switzerland,
Ireland, Dubai and Luxembourg have all been considered by various
commentators to fall within this categorisation.
4. AN OVERVIEW
4.1 The Isle of Man is located in the Irish
Sea at the heart of the British Isles. The Island is 33 miles
long by 13 miles wide, with a land mass of 227 square miles. The
population is approximately 81,000.
4.2 The Island is a self-governing Crown
Dependency with its own government and laws. The Island is not
and has never been part of the United Kingdom and has no representation
in Parliament. The Island's parliament, Tynwald, was founded over
1,000 years ago and is the oldest continuous parliament in the
4.3 The people of the Isle of Man, and things
pertaining to the Island, are referred to as Manx.
4.4 The Isle of Man is not part of the European
Union, but it has a limited relationship under Protocol 3 to the
United Kingdom's Act of Accession in 1972. This allows for the
free trade of agricultural and manufactured products across the
EU, but not for services. The Island does not receive any funding
or support from the EU. The Isle of Man is part of the European
Common Customs Area and has a revenue sharing customs agreement
with the UK.
4.5 Whilst the Isle of Man is a separate
and distinct legal jurisdiction, it is not a secret one. The Island's
legal system follows UK common law, and explicitly does not have
any bank secrecy legislation. As explained elsewhere in this document,
a number of independent external assessments of the Island's regulatory
regime have validated that the Island co-operates fully in the
international fight against terrorism financing and financial
4.6 These assessments include the Home Office
commissioned Edwards' Report, the Financial Action Task Force
("FATF"), the OECD, the IMF and the Financial Stability
Forum. Without exception, such reviews have found the Island to
have very high levels of compliance with relevant international
standards and supervisory practices, and levels of international
co-operation that place it in the first division of OFCs.
4.7 The Island's positive image is further
reinforced by Moody's and Standard and Poor's AAA accreditation.
Accolades for the Island have included being awarded "Best
International Financial Centre" at the International Investment
Fund and Product Awards for seven out of the past eight years,
and European winner of "Financial Centres of the Future 2005"
from The Banker magazine.
5. ECONOMIC DIVERSITY
5.1 The Isle of Man is an economically diverse
economy, of which the Finance Sector directly accounts only for
36% of gross national income.
The Island's proposition is one of an international business centre,
not merely a finance sector; one where real business is encouraged
rather than "brass plate" operations.
5.2 Included within this diversity of activity
within the financial community are:
Over the past 10 years, the Island's ebusiness
activities have blossomed. From an IT infrastructure perspective,
the Island's proposition is compelling. It offers a world-class
telecoms solution, with two separate high capacity self-healing
fibre optic rings currently utilised under 1% of capacity; advanced
mobile technology, being the first country in Europe to introduce
a 3G service, and the first in the world to adopt 3.5G; near 100%
broadband available across the Island; and a highly IT-literate
workforce, with over 90% of school leavers holding a recognised
IT qualification. These technical advantages, coupled with a highly
competitive corporate tax environment and a good quality of life
for employees, have helped position the Island as a leading ebusiness
jurisdiction. From the e-gaming perspective, Microgaming and BetInternet
are key participants. The Isle of Man was one of only two countries
identified by the UK Department of Culture, Media and Sport to
be white-listed4 in relation to the Gambling Act 2006. But the
e-business sector is wider than gaming; other companies provide
a mix of specialist software solutions, web hosting, online money
transmission, IP telephony, security, data storage and associated
As a maritime nation, it is only to be expected
that shipping is within our lifeblood. In fact, the first entry
on the Island's shipping register dates back to 1786, and the
Island became an international register in 1984. Nowadays, there
are different registers for merchant shipping, commercial yachts,
and leisure craft. The Ship Registry is a world recognised Category
One Red Ensign Group register, and maintains a high position on
the Paris MOU "White List" for Port State Control. In
addition the Isle of Man was placed No 1 on the Flag State Performance
table issued by a Round Table of shipping associations making
it the "Best Register in the World". The Isle of Man
Shipping register adds significant value to the shipping sector
in the City of London.
Adding to the success of the Ship Register,
the Island launched an Aircraft Register in 2007. Linked to the
UK CAA register, but with the aim of providing a fast and user-friendly
service, the register has already seen great success particularly
in the new "light jet" market.
Over recent years, The Isle of Man has built
a worldwide reputation for co-financing and co-producing feature
film and television dramas. The Island has become one of the busiest
areas of film production in the British Isles, having produced
over 80 feature films and TV dramas since 1995. Films such as
Stormbreaker and Miss Potter were shot on locations
both in the UK and the Isle of Man, demonstrating the symbiotic
relationship that exists between the two jurisdictions. To support
the film sector, a local industry has developed in areas such
as construction, medical assistance, locations, production, post-production
and wardrobe. To further assist in the development of career paths,
Isle of Man Film is working with the Isle of Man College in enhancing
the industry based courses already available on the Island. In
addition to this Isle of Man Film ensures that at least four local
trainees are employed per production as part of the Island's commitment
to fostering a new generation of skilled and experienced local
The Island's Space business has developed strongly
since the millennium. The Island is now home to active subsidiaries
of the world's leading space and satellite companies such as SES
Global, Inmarsat, Sea Launch, Lorel and Boeing. The Island is
also home to other less well-known, but equally impressive, enterprises
in the space sector. For example, Genesys Consulting Limited won
top prize in the prestigious European Satellite Navigation Competition
2006 for innovative applications of satellite navigation technology,
beating over 200 other companies from across Europe. Genesys Consulting's
winning project married satellite navigation technology and geological
science to create an application that can be used for surveying
for natural resources and helping to predict earthquakes and volcanic
eruptions. Working closely with ManSat Limited, Isle of Man satellite
companies are able to access orbital positions and radio frequencies
via the International Telecommunications Union in Geneva. ManSat
can make such filings with a speed and efficiency that many jurisdictions
The Isle of Man has developed into one of the
world's largest offshore life assurance jurisdictions. The Island's
combination of highly skilled staff, innovative product design
and strong but appropriate regulation has led to strong sustained
growth in the market. The Island is home to international life
assurance arms of many of the world's leading financial services
groups. An indication of how successful the Island has been at
attracting new life business is given by the total funds under
management for the sector. For the year ended 31 December 2006
these totalled in excess of GBP32 billion, representing a compound
annual growth rate of 17% over the last five years. Indicative
figures for December 2007 confirm that this strong growth has
continued. A significant portion of these assets are invested
through the City of London.
The Isle of Man is recognised as being one of
the leading centres for captive insurance and has a strong reputation
for attracting high quality captive business. The Island offers
a broad range of captive management services, ranging from small
local operations to representatives of the world's leading captive
management groups, such as Willis and Marsh, whilst the Global
head office for AON Group's captive management is also based on
Since the introduction of the Retirement Benefits
(International Schemes) Regulations 2001, the Island has become
established as a major centre for the administration of international
pension schemes. The legislation establishes a sound governance
template for international schemes, with the objective of encouraging
international businesses with globally mobile employees to base
their schemes in the Isle of Man. The Island provides a solid
foundation for international retirement planning by ensuring that
schemes are operated by appropriately licensed professionals,
that the latter adopt strong internal governance, and that certain
member rights are enshrined in law. In terms of the transfer of
pension rights from the UK, the Isle of Man's Pensions legislation
is fully recognised by HMRC, and Isle of Man schemes are capable
of being registered as Qualifying Recognised Overseas Pension
As described in detail in section 7.4 below,
the Isle of Man plays a key role in assisting international companies
to achieve listings on AIM. India is now the second largest investor
into City of London, and 75% by market capitalisation of Indian
business listed on AIM is structured through companies domiciled
in the Isle of Man.
Professional support services
The various financial services provided from
the Isle of Man are supported and complemented by a strong body
of professional legal and accounting advisers offering a deep
understanding of international personal and corporate business
and the ability to advise on complex financial structures, thus
developing business through a value added proposition rather than
solely through a competitive tax environment.
5.3 The Island is not resting on its laurels,
and constantly seeks to re-engineer and extend its proposition.
The Island sees a key component of its future role as working
in close partnership with the City of London on a "hub and
spoke" basis, providing value and profits to both centres.
6.1 We are pleased to respond to the Committee's
questions as follows:
7. To what extent, and why, are Offshore Financial
Centres important to worldwide financial markets?
7.1 It has been suggested
that OFCs have two implications for global economies:
7.2 First, such centres reduce the effective
marginal tax rate on capital, and as a result, create more incentives
to save and invest. Because the cost of doing business in or though
OFCs is lower, businesses operating in or through these countries
can undertake investments with lower expected returns or higher
risks than those in high tax jurisdictions. With these new investment
opportunities, individuals and corporates will most likely consume
less (or keep a smaller share of their wealth in non-income generating
assets) and save and invest more.
7.3 Secondly, by providing a lower tax alternative
for mobile taxable resources, OFCs can serve to moderate public
sector spending, improve efficiencies in public service delivery,
and keep higher spending jurisdictions in check. Hines
notes that since the 1980s, effective corporate income tax rates
across the industrialized world have fallen by nearly 15% and
statutory tax rates have dropped by almost 20%. During the same
period, activities in OFCs as a share of world economic output
7.4 The geographic proximity and time zone
of the Isle of Man and other Crown Dependencies has been important
factors in the development of the City of London over the past
two decades, to its current position as the World's pre-eminent
finance centre. As outlined above, the growth in AIM listings
for non-UK sourced business has been achieved in partnership with
these three territories. It could be argued that without OFCs
and the opportunities offered by the Crown Dependencies, AIM would
not have achieved its current success. In the context of the Isle
of Man, research from Hemscott Group Limited
dated March 2008 notes that:
521 AIM companies were incorporated outside the
The top three jurisdictions for the registration
of non-UK AIM companies were Guernsey (61 companies), Isle of
Man (59 companies) and Jersey (51 companies). In total, the three
Crown Dependencies represented 171 listings, or 33% of the total
non-UK incorporated companies. The combined market capitalization
of these companies was nearly £17 billion, or which £7.2
billion alone related to Manx incorporated entities.
Of the 15 countries outside the UK that are the
registered homes of AIM 100 companies, 12 of these are incorporated
in the Isle of Man, with a market capitalisation of £4.6
This demonstrates the Isle of Man's growing reputation
as the preferred jurisdiction for overseas companies listing in
7.5 The Isle of Man's contribution towards
the City of London's international trade has been acknowledged
by the current Lord Mayor, Alderman David Lewis, who is quoted
that "assets worth billions of pounds held by Isle of Man
companies are invested in and through the City. The way we see
it is that the Isle of Man is a core asset for the City."
adding that "from the City's point of view, your brand was
immensely strengthened when you committed to work with the OECD
on improving transparency and tax information, and then backed
it up with a host of Tax Information Exchange Agreements".
8. To what extent does the use of Offshore
Financial Centres threaten financial stability?
8.1 We submit that the Isle of Man poses
no threat to financial stability, indeed the centre enhances it.
8.2 In the first instance, it should be
recognised that not all OFCs are the same. The Financial Stability
Forum in their April 2000 report noted that the term "offshore"
carries with it in some quarters "a perception of dubious
or nefarious activities". The report continues to note that
"there are, however, highly reputable OFCs that actively
aspire to and apply internationally accepted practices, and there
are some legitimate uses of OFCs. OFCs are not homogeneous and
there is a wide variety of practices found in them. Hence, there
is a strong aversion by some jurisdictions to being listed as
an offshore centre given the risk of guilt by association".
8.3 Following on from this work, in May
2000 the Financial Stability Forum published a press release
which placed the Isle of Man into Group I of OFCs, albeit with
the imperative for the Island and the other British Isles centres
to continue to improve their quality of supervision. Jurisdictions
in this category "are generally perceived as having legal
infrastructures and supervisory practices, and/or a level of resources
devoted to supervision and co-operation relative to the size of
their financial activities, and/or a level of co-operation that
are largely of a good quality and better than in other OFCs".
8.4 We consider that the Isle of Man has
engaged constructively with the international debate and developments
in international supervision over the past 10 years.
8.5 The work done by the Isle of Man has
been recognised by the House of Commons. In May 2008 the Committee
of Public Accounts published its Seventeenth Report of Session
entitled "Foreign and Commonwealth Office: Managing Risk
in the Overseas Territories". Whilst the report is directed
towards the Overseas Territories rather than the Crown Dependencies,
a key conclusion was that "overall regulatory standards in
most Territories, particularly those with smaller financial centres,
are poor compared to standards achieved in the Crown Dependencies".
8.6 The Isle of Man has long-standing and
comprehensive anti-money laundering legislation. Indeed, the Isle
of Man led the way in the concept of "know your customer"
and has long been regarded as setting the gold standard in this
8.7 It has been claimed that there are more
company administrators within the London area than in all the
British OFCs. Whatever the respective numbers, unlike the Isle
of Man, these UK based businesses are not subject to regulation,
although they have recently been brought into the UK's anti money
laundering regime. In contrast to this unregulated corporate management
activity in the UK, the Isle of Man's Corporate and Trust Service
Providers have been subject to the Island's anti-money laundering
regime since 1999, and have been regulated by the FSC since 2000
in the case of the provision of corporate services and since 2005
in relation to trustee services. It should be noted that the legislation
to regulate fiduciary activities was introduced on the Island's
own initiative, and not in response to any external pressures.
9. How transparent are Offshore Financial
Centres and the transactions that pass through them to the United
Kingdom's tax authorities and financial regulators?
9.1 The Isle of Man, unlike some other jurisdictions,
does not have any bank secrecy legislation. The position in the
Isle of Man in terms of the practice of normal commercial confidentiality
is identical to that in the UK. UK case law on the subject is
followed, as represented by the case of Tournier v National
Provincial and Union Bank of England  1 K.B. 461.
9.2 The Island's stance has been to engage
constructively with international bodies such as OECD and to position
itself to be both internationally responsible and compliant, where
9.3 Arising from this engagement, the Island
has entered into a number of OECD model Tax and Information Exchange
Agreements ("TIEAs") over recent years. In 2002, a TIEA
with the USA was signed, and in 2005 one with Netherlands was
executed; both of these came into effect in 2006. In 2007, the
Island entered into TIEAs with Denmark, Faroe Islands, Finland,
Greenland, Iceland, Norway and Sweden. More recently, the Island
executed a TIEA with Ireland.
9.4 The Isle of Man currently has the largest
network in the world of TIEAs based on the OECD model agreement
on exchange of information on tax matters. Of the 25 TIEAs currently
executed between OECD member states and OFCs, 10 of these have
been entered into by the Isle of Man, demonstrating both the Island's
commitment to transparency and international assistance, and its
leading stance in this area.
9.5 We understand that the Isle of Man Government
is in negotiations to execute TIEAs with a number of other OECD
member countries, including Australia, Belgium, Canada, France,
Germany, India, Italy, New Zealand, Spain and the United Kingdom.
9.6 The Chamber of Commerce endorses the
stance of the Isle of Man Government, being the principle of entering
into OECD-model TIEAs with other jurisdictions on the basis of
mutual economic benefit, for example allowing market access or
the removal of the Isle of Man from any black-lists maintained
by the counterpart country.
9.7 In relation to the UK, the current Double
Taxation Treaty between the two nations dates back to 1955. This
agreement provides for the disclosure of relevant information
held by our revenue authorities, on request.
9.8 As set out below, this Chamber would
support the entering into of negotiations leading to an updated
OECD-type DTA with the UK, subject to constructive support from
the UK as outlined in our proposal.
9.9 The Isle of Man is a participant within
the EU Savings Directive network of Third Countries and has adopted
a default position of retention tax, along with the other Crown
Dependencies and some other European countries. As this Directive
evolves, the Chamber of Commerce is confident that the Isle of
Man will continue to be an active contributor to the debate.
9.10 The FSC, which is the principal regulatory
body in the Isle of Man, has committed to compliance with the
Basel Core Principles in prudential regulation of banking institutions
and with FATF Recommendations on the prevention of money laundering
and the countering of the financing of terrorism.
9.11 The FSC is a member of the International
Organisation of Securities Commissions ("IoSCO") and
has been accepted as a signatory to the IoSCO Multilateral Memorandum
of Understanding Concerning Consultation and Cooperation and the
Exchange of Information. The FSC is committed to compliance with
IoSCO's Objectives and Principles of Securities Regulation.
9.12 The FSC is also a member of the Offshore
Group of Banking Supervisors. The Financial Crime Unit ("FCU")
is the Island's financial intelligence unit. The FCU is a member
of the EGMONT Group of Financial Intelligence Units, and the EGMONT
secure channels of communication are available to other members
of this grouping when contacting the FCU.
9.13 The Isle of Man has a wide number of
gateways for the provision of information and evidence to foreign
regulators, prosecutors and Courts. These are summarised in Appendix
One at Section 19.
9.14 In summary, we consider the levels
of transparency to be reasonable and balanced. The UK Tax Authorities
have recourse to action that can be taken in the event of tax
evasion, should this occur. Equally we are a well regulated jurisdiction
and should the UK FSA identify a situation regarding regulated
activity which gives it concern, it has recourse through the Isle
of Man regulators to take appropriate action.
10. To what extent does the growth in complex
financial instruments rely on Offshore Financial Centres?
10.1 If focus of the Committee is on the
smaller nations, it should be recognised that these centres are
not generally involved in the creation and distribution of complex
financial instruments, other perhaps than being used as a booking
centre for the transaction.
10.2 The sixth report of the Committee refers
(paragraph 32 on page 14) to Granite, the Jersey-based SPV of
Northern Rock. There are two aspects to the use of an SPV in this
manner: firstly, the design and planning for such a structure
took place in the UK, by a UK regulated banking institution. We
suggest that control might better be focussed on the planning
stage, particularly when such is undertaken by a regulated entity
in the UK, rather than the implementation offshore of an agreed
strategy. The second aspect is that the use of Granite and similar
vehicles to package financial products and to move them off balance
sheet into a separate structure is an important component of the
international financial services environment which has facilitated
the development of the finance sector over the past decade. We
suggest that although Granite is a facet of the Northern Rock
problem, it was the broad strategic failings of the UK bank's
management which brought about the company's difficulties, rather
than any activities emanating from an OFC.
10.3 Most complex financial derivates tend
to be created in the major financial centres such as London and
New York, and it is in these centres that the majority of the
financial planning and engineering are undertaken.
11. How important have the levels of transparency
and taxation in Offshore Financial Centres been in explaining
their current position in worldwide financial markets?
11.1 The success of the Isle of Man is due
to a dynamic and legitimate approach to business. The Island's
levels of transparency are reasonable and balanced. Whilst it
is recognised that the Island's competitive taxes are one component
of its success, each country in the world has its own particular
advantages and the Island competes honestly and legitimately on
the international stage, with a high level of transparency and
an aggressive willingness to assist nations in their fight against
financial crime and terrorism.
11.2 As stated above, the Isle of Man is
not a closed jurisdiction, and it has no bank secrecy laws. Over
the past decade, the Island has been assessed by a number of international
agencies and reviews. These have all confirmed that the Island
is proactive in its co-operation with other territories in the
pursuit of international financial crime and that its defences
against money laundering comply with the highest global standards.
11.3 Our Government's policy is to be both
internationally responsible and economically competitive: complying
with changing international standards on information exchange
and `harmful practices' whilst lowering the standard rate of income
tax for businesses. Unlike others, the Island has pursued a strategy
of engagement with international bodies. For example, the Island
is, through the UK, a member of OECD and is an active participating
partner in the OECD Global Forum on Taxation.
12. How do the taxation policies of Offshore
Financial Centres impact on UK tax revenue and policy?
12.1 Although it might be assumed that an
adjacent OFC would be detrimental to the tax base of the UK, we
suggest that this is a simplistic and inaccurate interpretation
of the relationship which exists.
12.2 The UK has introduced significant anti-avoidance
legislation which has reduced the attractiveness of OFCs to UK
resident and domiciled individual clients, and to most UK corporate
taxpayers. In order to ensure that the Isle of Man reduces the
risk from the wrong types of business the Island has introduced
KYC and source of funds enquiries for new customers. In addition
the FSC regulate corporate service providers to ensure that take-on
procedures are adhered to; otherwise regulatory consequences will
follow from a breach, which can include but is not necessarily
limited to the revocation of the company's license to provide
corporate administration services.
12.3 From the corporate tax perspective,
recent press reports would suggest that mainstream EU partners
such as Ireland are benefiting much more from tax arbitrage than
are the smaller nation OFCs.
12.4. A paper by Desai, Heinz and Fritz
("Do Tax Havens Divert Economic Activity?" 2005) concludes
that "contrary to many policy concerns and the assumptions
of much of the tax competition literature, reduced costs of using
tax havens do not appear to divert activity from non-havens".
12.5 The authors suggest that "the
empirical evidence indicates that firms facing reduced costs of
establishing tax haven operations respond in part by expanding
their foreign activities in nearby high-tax countries. Hence it
appears that careful use of tax haven affiliates permits foreign
investors to avoid some of the tax burdens imposed by domestic
and foreign authorities, thereby maintaining foreign investment
at levels exceeding those that would persist if tax havens were
12.6 They conclude that "the available
macroeconomic evidence indicates that countries have not reduced
their taxation of foreign investment, or of capital income, to
anything approximating the degree implied by many models of capital
tax competition. The use of tax havens by foreign investors may
help to explain this empirical pattern, as high-tax countries
are able to maintain high-tax rates while continuing to draw significant
levels of foreign investment. It is not even necessary that high-tax
countries are aware of the importance of tax havens in preserving
their ability to attract foreign investment".
12.7 The many billions of pounds collected
by Manx investment and insurance businesses from expatriates around
the world mainly find their way to the United Kingdom and in particular,
the City of London. The profits earned by the various City institutions
on this business contribute notably to the UK's tax take. Furthermore,
from the resources of the IOM government, generated in large part
by the success of the various IOM financial institutions, very
significant sums have been spent of improving our infrastructure.
The companies employed to complete this work are invariably UK
companies, thus again enhancing the UK tax take, together with
benefits for UK employment.
13. Are British Overseas Territories and Crown
Dependencies well-regarded as Offshore Financial Centres, both
in comparison to their peers and international standards?
13.1 We submit that the answer to this question
in respect of the Isle of Man is a resounding yes.
13.2 In 2000, FATF conducted a review
into "non cooperative countries/territories". The findings
of this review were that the Isle of Man passed the tests applied
to it, and so did not meet the criteria for a "non co-operative
country". In reaching this conclusion FATF commented that
"the Isle of Man has a robust arsenal of legislation, regulation
and administrative practices to counter money laundering. Perhaps
more importantly, the authorities clearly demonstrate the political
will to ensure that their offshore financial institutions and
the associated professionals maximise their defences against money
laundering and co-operate effectives in international investigations
into criminal funds". The report added that "the standards
set in the Isle of Man are close to complete adherence with FATF's
13.3 The Financial Stability Forum undertook
a review in 2000 to consider the implications of OFCs on global
financial stability. The Isle of Man was one of only eight offshore
jurisdictions that were given the highest rating.
13.4 In 2003, the IMF's assessment
of the supervision and regulation of the finance sector concluded
that "the financial regulatory and supervisory system of
the Isle of Man complies well with the assessed international
13.5 Commenting on the execution of the
TIEA between the Isle of Man and the Netherlands, the Secretary-General
of the OECD commented
that "this agreement confirms the Isle of Man's commitment
to implement high international standards, thereby reinforcing
its stature as a responsible international financial centre".
13.6 More recently, the execution of the
Isle of Man TIEA with Ireland led the OECD
to "welcome these agreements as enhancing the international
reputations of ... the Isle of Man as legitimate financial centres
and thereby strengthening their integration into the international
financial system" adding that "the trend towards greater
transparency and tax cooperation continues as more and more countries
and jurisdictions implement the OECD standards," and that
"recent events have put international tax evasion in the
spotlight, demonstrating the pressing need for action to tackle
tax compliance issues in an increasingly borderless world. These
agreements will better equip their signatories to address all
forms of tax abuses."
13.7. From an investor protection perspective,
the Isle of Man has led the way, with the introduction of a number
The Depositors' Compensation Scheme protects
up to 75% of deposits, to a maximum of £20,000. Whilst this
is now lower than the recently revised UK scheme, it is broadly
in line with schemes in other EU member states, and covers both
individual and corporate depositors, wherever located, and for
deposits in all currencies.
Life Assurance Policyholders
The Life Assurance (Compensation of Policyholders)
Regulations 1991 ensure that, in the event of a life assurance
company being unable to meet its liabilities to its policyholders,
up to 90% of the liability to the protected policyholder will
be met. Unlike many other policyholder protection schemes, the
Island's scheme operates globally, providing protection to policyholders
no matter where they reside.
Investors in Authorised Collective Investment
The Scheme compensates investors in Authorised
schemes for 100% of the first £30,000 of claim, and 90% of
the remainder, up to a maximum compensation of £48,000.
Financial Services Ombudsman Scheme
The Island operates a free, independent dispute
resolution service for customers worldwide with a complaint against
an Isle of Man financial firm such as a bank, insurance company
or financial adviser.
14. To what extent have Offshore Financial
Centres ensured that they cannot be used in terrorist financing?
14.1 Given the proximity of the Isle of
Man to Northern Ireland and to the Republic of Ireland, in an
historical context the Isle of Man has long understood the risks
of it being used for terrorism financing and its original anti-terrorism
legislationthe Prevention of Terrorism Act 1990predates
more recent global initiatives and concerns.
14.2 In the modern-day context, the Isle
of Man strives towards full compliance with international standards.
In their November 2003 report, the International Monetary Fund
that "the financial regulatory and supervisory system of
the Isle of Man complies well with the assessed international
standards. The authorities are to be commended for the attention
they have given to upgrading the financial regulatory and supervisory
system to meet international supervisory and regulation standards
in banking, insurance, securities and anti-money laundering and
combating the financing of terrorism (AML/CFT), and the introduction
of a comprehensive regime for the licensing of corporate service
14.3 The report also concluded that "The
jurisdiction has been assessed to have a high level of compliance
with the four key standards. Moreover, the legal framework for
company and trust service providers (TSPs) is fully consistent
with the Offshore Group of Banking Supervisors (OGBS) Statement
on Best Practices." The report did identify a number of shortcomings
but noted that these "have not been a major concern to date".
14.4 Please also refer to the positive external
endorsements of the Island's stance on Anti-Money Laundering initiatives,
as set out in section 13.
15. What are the implications for the policies
of HM Treasury arising from Offshore Financial Centres?
15.1 The Isle of Man is a key contributor
of deposits and business referrals to the City of London. The
Island (along with the other Crown Dependencies) is a significant
component of the UK's proposition as the world's leading financial
centre. We propose that it would be to the benefit of both the
UK exchequer, and to the Island, for the Isle of Man to be promoted
and endorsed internationally by the UK Government as a key contributor
to the success of the City of London.
15.2 Looking to the future, the Isle of
Man Chamber of Commerce would support the commencement of negotiations
between the UK and the Isle of Man leading towards the execution
of an OECD-model TIEA between the two nations.
15.3 However, given the disappointment and
frustration that is felt within the Island that initiatives taken
by the Island in good faith to meet agreed international standards
over the past decade has not been fully acknowledged, we propose
that the entering into of such an agreement would represent an
ideal opportunity for the UK to support further its Crown Dependency
on the international stage. Such support might include:
public recognition by the UK, and communication
in all relevant forums, of the stance and position of the Isle
of Man in terms of its commitment to international transparency
and stability; and
the UK, working in partnership with the Isle
of Man, communicating to and educating its European partners on
the constructive position and stance adopted by the Isle of Man,
in stark contrast to some other European centres.
16. What has been and is the extent and effect
of double taxation treaty abuse within Offshore Financial Centres?
16.1 This is a difficult question to answer.
A double taxation treaty is an agreement entered into by two nations.
Almost invariably, where an individual or corporation has a presence
in both jurisdictions, tax experts will endeavour to construct
their clients' affairs in a legitimate manner in order to minimize
taxation. If the tax planning is open and as is regularly the
case prior consents from HMRC are sought this would seem to be
symbiotic for both parties.
16.2 Research by academics such as Desai
et al (cited above) suggest that without this relationship
in the first place the group may choose another jurisdiction (ie
not the UK) that offers this opportunity. This would clearly not
benefit the UK.
17. To what extent do Offshore Financial Centres
investigate businesses and individuals that appear to be evading
17.1 The Isle of Man certainly does not
encourage this type of business.
17.2 If the UK authorities become aware
of tax evasion they have avenues open to them which should result
in the tax being settled, together with penal rates of interest,
potential fines and in some cases, custodial sentences.
17.3 A schedule of the gateways available
to foreign authorities is set out in Appendix one. In particular,
the Island's Criminal Justice Acts, which date back to the early
1990s, facilitate the assistance of any country where the conduct
constituting a taxation offence under the law of that country
would also constitute the same or a similar offence under Isle
of Man law or where the conduct constitutes serious or complex
17.4 The Island's Money Laundering legislation
is extensive and is broadly equivalent to the third EU Money Laundering
Directive. Given the nature of the Island's financial services
proposition, any money laundering discovered is likely to have
a cross-border element and there is, therefore, provision for
legal assistance. In particular, disclosure of any suspected money
laundering is made to the Financial Crime Unit ("FCU")
of the Fraud Squad of the Isle of Man. The FCU liaises with the
Serious Organised Crime Agency in London.
18.1 In summary, we submit to the Committee
that the Isle of Man:
Is in the upper tier of OFCs;
Has demonstrated its stated commitment to international
engagement and co-operation with a series of positive initiatives
over many years; and
Is a responsible member of the international
community, a stance that has resulted in the Island being consistently
well-regarded by international bodies undertaking reviews of the
18.2 Consequently, we believe that the Island
poses no threat to international stability.
19.1 The Isle of Man has the following gateways
for the provision of information and evidence to foreign regulators,
prosecutors and Courts:
19.2 Sections 24 and 25 Criminal Justice Act
Section 24 grants considerable powers of investigation
to the Attorney General ("AG"), which can be exercised
where it appears to him that there are reasonable grounds for
suspecting serious or complex fraud, where ever committed, and
whether inside our outside the Island.
Under Section 25 the AG can disclose the information
that he obtains for the purposes of investigation of an offence
or a prosecution in the Isle of Man or elsewheresee Section
25 (4)(c). Further, the AG can disclose this information to any
person or body having, under the law of any country or territory
outside the Isle of Man, functions which correspond to the Manx
functions of an Inspector under the Companies Act or the functions
of a regulatory body in any area of commercial activity. The AG
does not have the power to disclose information that he has obtained
under these powers to a private plaintiff for use elsewhere (see
19.3 Section 21 and 22 Criminal Justice Act
Section 21 gives the AG the authority, upon
receiving a request from a foreign jurisdiction, to appoint the
High Bailiff to receive evidence for use in criminal proceedings
Section 22 grants the AG the authority to search
for evidence within the Island.
19.4 Tax Information Exchange Agreements
The Manx Government has entered into TIEA's
with Denmark, Faroe Islands, Finland, Greenland, Iceland, Ireland,
Norway, Netherlands, Sweden and the United States. The Island
is currently negotiating TIEA's with a number of other jurisdictions,
including Australia, Belgium, Canada, Estonia, France, Germany,
India, Italy, New Zealand, Spain and the United Kingdom.
By way of an example as to modus, the TIEA with
the US has been incorporated into Manx domestic law through the
Income Tax (USA) Order 2006 (SD169/06), which permits the US to
approach the Chief Financial Officer in the Isle of Man, to seek
information in relation to federal tax matters. It should be noted
that under Article 5 of the 2006 Order, "such information
shall be exchanged without regard to whether the conduct being
investigated would constitute a crime under laws of the requested
party if such conduct occurred in the territory of the requested
party". In other words, there is no need for dual criminality
of offences, whereby the criminal offence being investigated in
the US would also be an offence under the law of the Isle of Man.
19.5 Section 17 Investment Business Act 1991
Section 17 allows the Financial Supervision
Commission ("FSC") to enter into mutual assistance agreements
with recognised regulators in countries or territories outside
the Isle of Man, which exercise functions corresponding to those
of the FSC. It is understood that the FSC has entered into a mutual
assistance agreement with IoSCO in the US, but in our experience
this section is used infrequently, because the FSC is bound by
the provisions of Section 24(6) Financial Supervision Act 1988,
which places restrictions upon the disclosure of information relating
to the affairs of an individual customer of a financial institution,
and can make disclosure quite cumbersome.
19.6 Section 24(1) Financial Supervision Act
Section 24(1) permits the FSC to disclose certain
restricted information (as defined at Section 23 of the Act) to
other authorities, regulators and prosecutors through the various
gateways listed in Section 24(1). The gateways are too numerous
and complex to discuss in this note, but it should be noted that
Section 24(1)(a) permits the disclosure of information by the
FSC "with a view to the institution of or otherwise for purposes
of criminal proceedings whether in the Island or elsewhere".
19.7 Section 14 and Schedule 3 Insider Dealing
Under Schedule 3, if it appears to the Treasury
that there are circumstances suggesting, amongst other things,
"that there may have been a contravention of the laws of
another country or territory relating to insider dealing and that
a person in the Island, (i) may have been concerned (directly
or indirectly) in any such contravention; or (ii) may have information
or documents which may be of assistance in the investigation of
any such contravention", it may appoint one or more inspectors
to carry out an investigation.
19.8 Evidence (Proceedings in Other Jurisdictions)
The 1975 Act is an Act of Parliament which was
applied to the Isle of Man by Order in Council (SI 1979/1711).
This act only applies to civil proceedings, and not to criminal
investigations, and under Section 2 the Manx Courts are given
power to obtain evidence in any way that the Court feels appropriate
for the purposed of giving effect to the request of any Court
outside the jurisdiction of the Manx Court, provided the Manx
Court is in empowered to obtain evidence in that way for Manx
Section 2 (2) of the Act sets out the type of
assistance that may be requested in civil proceedings, which includes
the examination of witnesses, either orally or in writing, the
production of documents and the preservation of property.
The UK has issued a Declaration under Article
23 of the Hague Convention on the Taking of Evidence Abroad in
Civil or Commercial Matters 1970, stating that it would not execute
letters of request for the purpose of obtaining pre-trial discovery
of documents, and the Declaration extends to the Isle of Man.
Whilst the 1975 Act only applies to civil proceedings,
some foreign authorities (such as the US SEC) can obtain penalties
in civil proceedings brought in the US, which may mean that it
could seek to obtain evidence in the Isle of Man under the 1975
Act. Normally, however, the SEC will use Section 24 CJA 1990 or
Section 21 CJA 1991 to obtain evidence in the Island.
19.9 Section 1 Bankruptcy Act 1988
Section 1 allows the Manx Court to grant an
Order in Aid pursuant to a request made to it by a Court in any
relevant country or territory.
Section 1(4) defines "relevant country
or territory" as the UK or any part thereof, and any country
or territory designated for the purposes of the Section by an
Order made by the Council of Ministers. To date, no such Order
has been made but it is anticipated that Orders will be made in
the near future.
19.10 Foreign Trustees in Bankruptcy and Foreign
The Manx High Court will also recognise a foreign
trustee in bankruptcy, or the liquidator of a company appointed
by a foreign Court, on the principles of international comity,
thus enabling the trustee/liquidator to investigate the activities
of the individual/company in the Island.
In the case of re: Regatta Trading Limited (21st
July 1998) (unreported) Deemster Corrin CBE applied rules 167(2)
and 169 in Dicey and Morris"Conflict of Laws"
(11th Edition) and recognised a trustee in bankruptcy appointed
by a Finnish Court. This judgment was upheld on appeal by the
Staff of Government Division, and is generally regarded as authority
for the power of the Manx High Court to recognise a foreign trustee
in bankruptcy or a foreign liquidator under the principles of
19.11 Mutual Legal Assistance Treaties ("MLAT's")
On 6 January 1994 the UK entered into a Treaty
on Mutual Legal Assistance in Criminal Matters with the US, and
that Treaty was extended to the Isle of Man on 5 June 2003.
Under the Treaty, the Central Authority for
the Isle of Man is the AG, and he will normally use his powers
under Section 24 CJA 1990 and Section 21 CJA 1991 to assist the
US pursuant to the Treaty.
It is anticipated that the Island will enter
into MLAT's with other jurisdictions, in similar terms, either
directly or through the UK.
282 http://www.imf.org/external/pubs/ft/wp/2007/wp0787.pdf Back
National Income Accounts 2005/2006, Economic Affairs Division,
Isle of Man Treasury. Back
Prosperitas, Vol VI, issue III www.freedomandprosperity.org Back
"corporate taxation and international competition" www.bus.umich.edu/otpr/wp2005-9.pdf Back