The Isle of Man, like other international offshore financial centres, has shown its support for initiatives to improve transparency and regulatory standards while adapting them to suit the local economic environment
The continued threat of terrorism combined with a spate of accounting scandals over the past couple of years have added further momentum to the push by financial centres to improve transparency and regulatory standards.
A coalition of forces are seeking information exchange for anti-money laundering activities, interdiction of terrorism and the enforcement of taxation. They include the G7 countries, the Organisation for Economic Co-operation and Development (OECD) and the EU.
International offshore financial centres, such as the Isle of Man, also have thrown their support behind such initiatives while seeking to ensure any proposed changes are sensitive to their local environments.
Level playing field
The island's government was praised for its early commitment to the OECD harmful tax practices initiative, while defending a 'level playing field' for the regulation and exchange of information as a requirement for action.
A financial centre's response to the demands and opportunities posed by changing regulation can be judged by whether it manages to balance its interest with that of the private sector, thereby allowing it to build a sustainable, long-term financial services industry.
The regulation of a financial centre must be weighed and measured to encourage good quality business to flourish, while protecting against association with undesirable clients.
The Isle of Man government endeavours to build an effective partnership between the public and private sectors, with robust leadership from the Treasury, particularly from the Income Tax Division, for specific tax initiatives.
Though independent of both the UK and the European Union, the Isle of Man government co-operates with two initiatives from Brussels known collectively as the EU Tax Package. They are the Savings Tax Directive and the Code of Conduct on Business Taxation.
Under the Savings Tax Directive, member states, dependencies and relevant third countries are expected to introduce automatic exchange of information, or a withholding tax, in relation to the interest paid to individuals resident in an EU country.
The Savings Tax Directive is not an inconsequential one, particularly among international finance centres. Some industry commentators have predicted that it will pose a serious threat to these jurisdictions and that EU citizens will rush to withdraw money from offshore funds once it comes into effect. The Isle of Man was not, therefore, going to make a hasty decision concerning the implementation of this directive.
Taking into account the varying standards for exchange of information, it would be premature for the Isle of Man to make a general commitment to automatic exchange of information at this stage.
After consultation with the industry, the island has agreed to introduce a withholding tax when the directive takes effect, subject to the approval of the island's parliament, Tynwald.
This will apply only to EU residents, who may choose to opt out of the withholding tax by agreeing to the exchange of information to their EU country of residence.
Though independent of the EU, the Isle of Man has accommodated the tax package as an internationally responsible jurisdiction co-operating with its neighbours.
Meanwhile, Standard & Poor's has reaffirmed the Isle of Man's AAA sovereign credit rating on the basis that S&P does not foresee any changes in the island's financial stability arising from its position taken on the Savings Tax Directive.
The Code of Conduct on Business Taxation seeks the phasing out of preferential tax rates, or tax exemptions, for particular types of business.
The Isle of Man - where tax exempt sectors provide significant employment and economic activity - is complying with the code's desire for greater uniformity by moving to a standard zero rate of income tax for business, and is on course to achieve this by 2006.
Offshore centres, particularly the Isle of Man, are also firmly backing the creation of a level playing field for the regulation of financial services among OECD members and non-members. The OECD must consider eliminating tax blacklists and work to secure open access to markets by all finance centres.
An example of blacklisting appeared last year when the Portuguese government introduced a new law discriminating against traditional offshore companies but gave exemptions to those in booming OECD "offshore" centres, namely Delaware.
A global level playing field does not yet exist and further progress should be made to achieve it, so that all countries can reach the high standards which the participants wish to see achieved.
Through the variety of competitive and regulatory changes facing international financial centres, the Isle of Man has responded in a way that befits its national symbol.
That symbol shows three legs joined together running with the motto which translates "whichever way you throw it, it will stand".
This credo resonates in the bold steps that the island has taken to enhance its competitive position as an international financial centre.
Though independent of the European Union, the Isle of Man has accommodated the EU Tax Package as an internationally responsible jurisdiction co-operating with its neighbours.
The Isle of Man is complying with the Code of Conduct on Business Taxation's desire for greater uniformity and is on course to achieve a standard zero rate of income tax for business by 2006.
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