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Offshore Financial Centres Last month, the Isle of Man committed to reform its tax practices in the face of pressure from the OECD. Alaric Nightingale examines the consequences for investors In December, the Isle of Man became the first of the ‘big three’ crown-dependent retail offshore financial centres (the others being Jersey and Guernsey) to give a formal response to the Organisation for Economic Co-operation and Development’s blacklist of so-called tax havens. The island’s commitments to escape the blacklist were sweeping and, for a certain sort of investor, worrying. Included in the Schedule of Proposed Commitments were offers to allow exchange of information “upon request and in accordance with tax information exchange provisions to
be negotiated”. Offshore Financial Centres - The Island The island has also offered “to ensure that information on beneficial ownership of companies, partnerships and other legal entities established on the Isle of Man, including managers of collective investment funds, and trustees and beneficiaries of trusts, is available to its tax or regulatory authorities”. If this happens, it could expose private investors who have set up Isle of Man domiciled trust funds to investigation by authorities seeking to recover unpaid taxes. Offshore Financial Centres & The Isle Of Man For the Isle of Man, dealing with the OECD’s attack in the right way is crucial. Nearly half of the island’s income (42 per cent) comes from its international financial services business and last year the sector produced growth of 21 per cent. An over-zealous desire to reform could, potentially, cause many investors to rehouse their millions in other offshore locations. So what the island has done is offer co-operation dependent on other
jurisdictions doing the same. At the time of writing, the OECD had just confirmed that the Isle of Man’s proposed commitments would be enough to ensure the island escapes a blacklisting. However, the organisation was unable to confirm whether the conditional nature of the proposals could eventually see the island placed back on the blacklist. Offshore Financial Centres - Switzerland And Luxembourg A spokeswoman said both Switzerland and Luxembourg (two of the jurisdictions that IOM is complaining about) were “expected to co-operate”, but she was unable to say what would happen to IOM if they did not. The island, for its part, says it has sounded out the OECD at “the highest level” and that it would not have committed to reform if there was any possibility of an eventual blacklisting. Fortunately for those investors who are placing money in the Isle of Man to avoid paying tax in another country, every proposed commitment from the jurisdiction is wrapped in caveat and qualifying statement. The island is at pains to point out that its proposed commitments amount only to a “public declaration made in good faith” and are not any sort of contract. One such caveat is that Isle of Man will not implement any changes unless other jurisdictions, including Switzerland, Luxembourg, Hong Kong and Singapore, follow the same path at the same time. “If international standards change, the Isle of Man, as a responsible jurisdiction, will endeavour to comply with those international standards and norms,” says the Treasury’s chief financial officer, John Cashen. “But we are not going to disadvantage ourselves by introducing these changes in advance of other countries like Switzerland, Hong Kong and Luxembourg. If they don’t meet the same criteria, then the whole exercise will collapse.” 
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