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New Manx Law To Tackle Tax Avoidance

by Jason Gorringe, Lowtax.net, London
29 November, 2013

The Isle of Man's parliament, Tynwald, is considering new legislation which is intended to prevent avoidance of income tax by the use of "personal service companies," Treasury Minister Eddie Teare said.

The Income Tax (Amendment) Bill 2013 ensures that individuals working through such companies have to pay tax in the same way as other employees.

Mr Teare observed: "Although the Island's income tax regime is favorable compared to other countries, there are still individuals who try to avoid or reduce their liabilities. I want to make sure that our tax system is fair, and that all employees are treated the same whether or not they work through a company."

He noted that income tax is essential for funding the island's public services, but in recent years there has been evidence of individuals planning to delay the payment of the tax by serving clients via companies owned by the individual, rather than directly as an employee.

"As the service is provided through a company, the payment for the service is made to the company. It is not considered to be remuneration of the individual and therefore is not subject to ITIP," the Minister said. "The change to the legislation will mean that if a client employs an individual it will not matter whether their services are provided through a company, trust or any other structure. The amount paid for their services will be treated as remuneration of the individual and subject to income tax with an ITIP deduction."

Mr Teare also said that he plans to introduce an order to address the use of personal service companies for National Insurance planning.

The Isle of Man was recently awarded the top tax compliance rating by the Organization for Economic Co-operation and Development (OECD).

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