In April this year, the OECD released a model agreement for effective exchange of information in tax matters, developed in conjunction with a number of non-member financial centres, including the Isle of Man.
For the Manx government, the completion of a new international standard, which we have helped to build, is a satisfying outcome of our policy of constructive engagement with global bodies and initiatives.
Our position, repeated at the start of 2001 when we made the commitment to co-operate with the OECD programme against harmful tax practices, has been clear, consistent and entirely positive.
We will comply with international norms on taxation, but expect these to apply equally to other relevant countries – whether large or small, or whether inside or outside the OECD. Indeed, the whole exercise of building international tax co-operation will be undermined if this is not the case.
On this level playing field, the Isle of Man is determined to be both co-operative and competitive as a centre for international business and financial services. In the meantime, our positive dialogue with the OECD has helped to reinforce our reputation as a stable and responsible base for business.
We welcome this dialogue as it has also given us the opportunity to put the record straight about the true qualities of the Isle of Man economy and to dispel its damaging ‘tax haven’ label once and for all.
The caricature ‘tax haven’ is a spurious entity, suggesting an economy based almost entirely on money laundering and tax evasion. It suggests a secret hiding place for the proceeds of crime, tax evasion and terrorism, from sources to which, at best, it turns a blind eye. It is a harmful parasite, a tax-free refuge for the rich which provides no public services or rights for its indigenous population.
This ugly stereotype is no more a description of the Isle of Man than it is of the UK or the US. The reality of the modern Isle of Man as a dynamic, open economy is the exact opposite of the generic ‘tax haven’ as perceived by the prejudiced and the ill-informed (including, I am sorry to say, some in the media).
I have already confirmed our policy of constructive engagement towards new international standards on taxation. On the separate issue of financial regulation, the island’s compliance with global best practice is well documented.
Our defences against financial crime and money laundering have been verified by several external examiners, including the UK Home Office, the Financial Action Task Force and the Financial Stability Forum.
The island is a separate jurisdiction, but not a closed one – we have normal business confidentiality but no banking secrecy laws. Our law enforcement agencies work regularly in co-operation with their counterparts around the world.
Our regulatory regimes met or exceeded international standards before the atrocities of September 11, but, in common with other countries, we have reviewed and tightened our safeguards since then.
Also, the Isle of Man has continued with a pre-scheduled programme of changes to further protect against misuse and abuse by the unscrupulous, from which no financial centre is immune.
At the beginning of 2002, for example, the island became one of the first jurisdictions in the world to regulate agencies which form and administer companies on behalf of international clients. This ‘corporate service providers’ regime ensures, among other things, that beneficial ownership details of such companies are available to the authorities.
This scheme and other improvements have all been introduced by Tynwald, the island’s parliament, which was founded by Norse settlers more than 1,000 years ago and believed to be the oldest continuous parliamentary assembly in the world.
We Manx are a distinct people, one of the smallest such groups in Europe, with a unique heritage that blends Celtic and Viking influences. The island has its own native tongue, Manx Gaelic, a member of the family of Celtic languages that includes Irish, Scots Gaelic, Welsh, Cornish and Breton.
The Isle of Man is not, and never has been, a part of the United Kingdom. As a British Crown Dependency, it has its own government and laws, but the Crown retains ultimate responsibility for representing the island internationally.
Nor is the island part of the European Union, with which it has a special and limited relationship providing for free trade in agricultural produce and manufactured goods. The island is self-financing and pays nothing to, and receives nothing from, EU funds.
Our position on the edge of the EU does not, of course, isolate us from European standards and values. We have incorporated the European Convention of Human Rights into our domestic law, and introduced a range of social legislation including a minimum wage.
The island was traditionally poor in relation to its larger neighbours, suffering from periodic emigration, and was subject to a British colonial-style executive government until well after the Second World War. It is only since the 1960s that Tynwald has been able to exercise increased independence to develop the economy for the benefit of the Manx people.
Economic growth has been strong, but it was not until 2000 that the Isle of Man finally caught up with the UK in terms of GDP per head, with annual GNP reaching £1bn for the first time. Growth has been matched by investment in public services, funded by a mixture of direct and indirect taxation (nearly half of our government’s revenue comes from VAT under a bilateral customs agreement with the UK).
In this year’s Manx Budget, for example, I was pleased to announce net spending of £388m on public services, or more than £5,000 per head for each of the island’s 76,000 population. More than half (58%) of this funding goes on health, social security, social services and education.
We have also had a lot of catching up to do with our public infrastructure, which had long suffered from under-investment. Major capital projects currently under way include a new hospital, an environmentally-friendly sewerage system, and an energy-from-waste refuse incinerator.
This new level of prosperity for the island’s people has only been possible because of a vibrant economy, led by a broadly based international financial services industry (40% of GDP), but also because of e-commerce, manufacturing, tourism, a growing film industry, and farming and fishing.
So what is the secret of our economic success, and what has the Isle of Man got to offer the world in the global economy of the 21st century?
Notwithstanding changes to adjust to international norms, a tax regime that is competitive as well as transparent will remain one of the island’s attractions (our basic corporate tax rate is 10%). Fair tax competition has to be good for the health of the global economy.
The island has also developed a specialist expertise in international transactions and offers a secure financial base for increasingly mobile companies and individuals. It is recognised that well-regulated centres such as the Isle of Man play a positive role as the facilitators of global business.
Our government encourages enterprise, our workforce is well-educated and our e-commerce infrastructure is world-class. Consequently, we have a reputation for stability and professionalism.
The island may be small, but it is a country – a micro-country – in its own right, proud of its traditions and its identity. However, the economic and political aspirations of our people are global, and the title ‘tax haven’ does us an injustice. In future, we would ask to be known just by our proper name: the Isle of Man.
©OECD Observer No 231/232, May 2002