Code of Conduct for Business Taxation and EU Listing Process from 2016
In 2016 the Council of the European Union (EU Council) committed as a priority to coordinated policy efforts in the fight against tax fraud, evasion and avoidance and against money laundering at an EU and global level. On 8 November 2016 the EU Council adopted the 'Conclusions on criteria and process leading to the establishment of the EU list of non-cooperative jurisdictions for tax purposes' (the 'EU Listing Process').
In 2016 the Code of Conduct for Business Taxation (the 'Code Group') were instructed by the Council to undertake a screening process whereby jurisdictions, including the Isle of Man, were assessed against standards of:
- Tax transparency,
- Fair taxation
- Compliance with anti–BEPS measures (together the 'EU Listing Criteria')
The screening process took place during 2017 and no concerns were raised against the Isle of Man’s standards of tax transparency and anti-BEPS compliance. Details of the Isle of Man’s policy on tax transparency is available and on its compliance with anti- BEPS can be found within our dedicated BEPS pages. However, during this screening process the Code Group expressed concern that, although it had met previous 'fair taxation' standards, the Isle of Man did not have a 'legal substance requirement for entities doing business in or through the jurisdiction'. The Code Group were concerned that this 'increases the risk that profits registered in a jurisdiction are not commensurate with economic activities and substantial economic presence'. These concerns were articulated in a letter to the Island in November 2017.
Isle of Man Response
In response, the Isle of Man Government made a commitment to address these concerns by the end of December 2018.
As identical concerns were raised in respect of Jersey and Guernsey, the Isle of Man has been working closely with those governments to collectively develop proposals to address the concerns raised by the Code Group. This work has included dialogue with the European Commission (Taxation and Customs Union - TAX UD) and the Code Group both in plenary sessions (with other jurisdictions) and bilateral meetings. This engagement is ongoing.
The Isle of Man has also engaged closely with the OECD through the Global Forum on Transparency and Exchange of Information for Tax Purposes, the Base Erosion and Profit Shifting Inclusive Framework and a specific voluntary group established to progress discussions on the issue of economic substance.
|High Level Timetable
|Industry engagement and drafting of legislation to introduce substance requirements commences
|Draft substance legislation and further transparency measures discussed with European Commission and the Code Group
|Substance legislation presented to Tynwald
|New requirements for companies engaged in certain activities to have substance apply for accounting periods commencing on or after 1 January 2019
|EU Listing decision expected
|First half 2019
|Consultation on Mandatory Disclosure Rules
|Second half 2019
|Regulations for Mandatory Disclosure Rules presented to Tynwald
|Companies commence filing of new form tax returns
On 12 March 2019 the Economic and Financial Affairs Council of the European Union (“ECOFIN”) reaffirmed its previous decision that the Isle of Man is a co-operative jurisdiction with respect to tax good governance.
ECOFIN has published an updated EU list of non-cooperative jurisdictions and confirmed that the Isle of Man is not one of them. This is on the basis that the Isle of Man has met its commitment to address general concerns raised by the EU in 2017 in relation to legal economic substance requirements.
This confirms that not only does the Isle of Man meet the international standards of tax transparency, the principles of fair taxation and is committed to fighting base erosion and profit shifting but now also addresses any concerns that profits were not commensurate with the actual economic substance in the island.
The Organisation for Economic Co-operation and Development (OECD) Inclusive Framework agreed in November 2018 that the work of the Forum on Harmful Tax Practices (FHTP) in relation to BEPS Action 5 would apply economic substance requirements to no or nominal tax jurisdictions as well as to preferential regimes. Therefore the Isle of Man will also be subject to a peer review by the FHTP on its implementation in 2019.
Further information is available in the ‘EU Listing Key Documents’ section below and by visit the Economic Substance page.
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EU Listing Key Documents
- OECD BEPS Inclusive Framework substantial activities requirement to "no or only nominal tax" jurisdictions.
- Letter from the Code of Conduct Group dated 6 November 2017
- Commitment letter from Isle of Man Chief Minister dated 17 November 2017.
- The report prepared by the Code of Conduct Group and agreed by ECOFIN on 5 December 2017
- Annex 4 of the Scoping Paper endorsed by ECOFIN on 8 June 2018
- OECD Forum on Harmful Tax Practices 2017 report
- OECD Model Mandatory Disclosure Rules for CRS Avoidance Arrangements and Opaque Offshore Structures
- EU Directive 2018/822 on Mandatory Disclosure
- Draft Isle of Man Legislation—Income Tax (Substance Requirements) Order 2018
- Key Aspects in relation to proposed economic substance requirements - Issued jointly by Guernsey, Isle of Man and Jersey - 5 November 2018
- Substance Flowchart
- Approved Isle of Man Legislation – Income Tax (Substance Requirements) Order 2018
- Updated Key Aspects in relation to proposed economic substance requirements - Issued jointly by Guernsey, Isle of Man and Jersey – 20 December 2018
- Isle of Man removed from annex II of ECOFIN non-cooperative jurisdictions – 12 March 2019
- Economic Substance Guidance Joint Guernsey Isle of Man and Jersey - 26 April 2019
- Approved Isle of Man Legislation - Income Tax (Substance Requirements) (Amendment) Order 2019
- Updated Economic Substance Guidance - Joint Guernsey Isle of Man and Jersey - 22 November 2019