President Joe Biden’s global tax plans could impact the Isle of Man‘s corporate tax system and its “ holy ” zero rate, island experts have warned.
Tax expert Paul Hotchkiss said the island couldn’t be complacent and warned: ‘The tax rate train has been going down for many years. Most observers knew something would happen at some point and now it’s firmly on the agenda.
He said the island couldn’t ignore President Biden’s widely publicized proposals that some commentators have said could kill tax havens and force multinationals to pay a “ fairer ” share of taxes.
Under proposals to tax negotiators in 135 OECD (Organization for Economic Co-operation and Development) countries, the Biden plan would force large corporations to pay taxes where their income is earned, not where the profits are earned. can be transferred. It would also establish a global minimum tax rate, agreed to by the world’s largest economies.
Paul Hotchkiss, chief executive and founder of Hotchkiss Associates, told Business News that the United States has “ floundered ” with their “ new ” tax idea.
should not be ignored
He said the US involvement “shouldn’t be ignored: the US usually gets what the US wants – look what happened with FATCA” (Foreign Account Tax Compliance Act) .
He added: “ The headlines are inundated with speculation and Biden’s idea of ââa global minimum rate appears to be a popular initiative internationally. As countries want and need to raise funds in the wake of the Covid-19 pandemic, has time passed for the holy 0% rate?
Mr Hotchkiss pointed out: ‘The Biden plan appears to solve what is seen as a global problem: it should prevent large companies from shifting their profits to low-tax jurisdictions and paying little or no tax. in countries where there is little or no consumption of services. This aspiration is more or less in line with the wishes of the OECD and discussions are indeed taking place between the United States and the OECD.
“The question is, what will this mean for the island and will these measures satisfy the EU, which has its own, slightly different agenda?”
He added: “ I think it would be naive to think that these global changes, fueled by budget constraints and growing discontent with the international role of so-called tax havens, will not impact the economy. island in one form or another.
âIdeally, we should ask ourselves questions: check and model what the future might look like and try to identify how the island might fit into a changing global economy.
âNo change is needed immediately, but at least the topic has to be on the agenda. We must not forget that as an island we have not been immune to the budgetary impact of Covid-19 and that we, along with other countries, also need funds to replenish the reserves and maintain our economy, but also to build a bright future for all.
“ The Isle of Man government recently announced an external economic review led by KPMG and, in my opinion, tax rates (and these global changes) need to play a big role in that: why the Will the future look like to allow the island to be sustainable in these changing global economic sands?
“ Tax systems should of course raise sufficient funds to provide the services an economy needs, any system should be seen as fair for everyone in society and in the current global economic system, it should also be attractive, to encourage companies to stay, to relocate. , prosper and sponsor inward migration â.
Mr Hotchkiss warned: ‘The Biden plan of course levels the playing field on taxation and for large economies it may make sense, but for small economies such a trend could be problematic.
“ The island might be in a good location because we already have a very diverse economy, but given that we are a small jurisdiction, we cannot be complacent. ”
He continued, âOverall, the only conclusion that can be drawn at the moment is that ‘the writing is on the wall’, although at the moment it’s a little illegible. The bottom line is that something will happen to tax rates globally and it could have an impact. Our job is to carefully monitor developments and most importantly, to the extent that we can anticipate, plan and be prepared: we simply cannot ignore it.
Tax consultant Greg Jones said it is likely that the United States will now come to the table to agree a plan with the EU and the United Kingdom to redistribute tax revenue more effectively depending on location. where they are earned.
He thinks it could eventually mean a “wholesale restructuring of the way companies are taxed globally is on the agenda.” This can only be bad news for the Isle of Man, as until now our business services industry has been based on local businesses with international reach enjoying a 0% corporate tax rate. on the Isle of Man (or previously a tax exemption).
Mr Jones added: ‘The kind of change that the rest of the world seems to be agitating about can only mean Isle of Man businesses are becoming more exposed to taxation elsewhere, thus eroding the value and benefits of be incorporated on the Isle of Man.
“ Of course, it will probably take time, but I think there is only one direction in which this is going to go … ”
The Guardian newspaper reported that it appears there is still a lot of negotiation to be done, including over the rate at which an overall minimum tax would be set.
He says: “After decades on the road to nowhere, global tax reform may finally be within reach.”