No capital gains tax, no inheritance tax and 0% corporate tax but the Isle of Man is not a tax haven … How?

There has been much rejoicing both here and in the Channel Islands following Mr Cameron’s recent comment in the Commons that he does “not think it is fair any longer to refer to any of the Overseas Territories or Crown Dependencies as tax havens.”

But what does he mean? Considering the Isle of Man enjoys no capital gains tax, no inheritance tax and (mostly) 0% corporate tax, saying we are not a tax haven seems a little incongruous.

I thought it would be interesting to start by looking at some definitions of a tax haven…


Google (yes, now apparently it’s a dictionary too!)
“A country or independent area where taxes are levied at a low rate.”


Macmillan Dictionary
“A place where people go to live, or where they keep their money, so that they don’t have to pay higher taxes in their home country”


Collins Dictionary
“A tax haven is a country or place which has a low rate of tax so that people choose to live there or register companies there in order to avoid paying higher tax in their own countries. NOUN – The region has become an important location for international banking because it is a tax haven.”


“A tax haven is a state, country or territory where certain taxes are levied at a low rate or not at all. Individuals and/or corporate entities can find it attractive to establish shell subsidiaries or move themselves to areas with reduced or nil taxation levels relative to typical international taxation”
“A country that offers foreign individuals and businesses little or no tax liability in a politically and economically stable environment. Tax havens also provide little or no financial information to foreign tax authorities. Individuals and businesses that do not reside a tax haven can take advantage of these countries’ tax regimes to avoid paying taxes in their home countries. Tax havens do not require that an individual reside in or a business operate out of that country in order to benefit from its tax policies.”


Free online Dictionary
“A country or state having a lower rate of taxation than elsewhere”


Business Dictionary
“Generic term for a geographical area outside the jurisdiction of one’s home country which imposes only a few restrictions on legitimate business-activities within its jurisdiction, and little or no income tax. Offshore havens generally provide international banking and financial services, and promise privacy of deposits and earnings. In effect, however, almost every country (in one way or the other) is a tax haven for non-nationals because it wants to attract foreign capital by offering incentives. Also called low tax jurisdiction, non tax jurisdiction, or offshore haven”
“A foreign country or corporation used to avoid or reduce income taxes, especially by investors from another country.”


Oxford dictionaries
“A country or independent area where taxes are levied at a low rate.”

All those definitions pretty much agree with each other – but apparently not with Mr Cameron. Based on these definitions, a nation like ours, which enjoys no capital gains tax, no inheritance tax and (mostly) 0% corporate tax should clearly be considered a tax haven.


So how does Mr Cameron square the circle?
The OECD definition of a tax haven is a three part test which includes ‘Lack of transparency” as its crucial third factor. Since the Isle of Man and Channel Islands have agreed exchange tax information with the UK and with other nations Mr Cameron considers them transparent and therefore according to the OECD definition they are no longer tax havens.


OECD definition of a Tax Haven.

Nil or only nominal taxes. Tax havens impose nil or only nominal taxes (generally or in special circumstances) and offer themselves, or are perceived to offer themselves, as a place to be used by non-residents to escape high taxes in their country of residence.

Protection of personal financial information. Tax havens typically have laws or administrative practices under which businesses and individuals can benefit from strict rules and other protections against scrutiny by foreign tax authorities. This prevents the transmittance of information about taxpayers who are benefiting from the low tax jurisdiction.

Lack of transparency. A lack of transparency in the operation of the legislative, legal or administrative provisions is another factor used to identify tax havens. The OECD is concerned that laws should be applied openly and consistently, and that information needed by foreign tax authorities to determine a taxpayer’s situation is available. Lack of transparency in one country can make it difficult, if not impossible, for other tax authorities to apply their laws effectively. ‘Secret rulings’, negotiated tax rates, or other practices that fail to apply the law openly and consistently are examples of a lack of transparency. Limited regulatory supervision or a government’s lack of legal access to financial records are contributing factors.

photo credit: garrettc via photopin cc


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