The Isle of Man Disclosure Facility – IoMDF – Manx Discloure Facility – MDF
On 19 February HM Treasury announced a tax co-operation agreement with the Isle of Man. The Memorandum of Understanding agreed between the two governments provides for:
- the automatic exchange of information (eg details of bank accounts) to combat tax evasion.
- a new Isle of Man Disclosure Facility (“IoMDF”) to encourage UK taxpayers to disclose unpaid liabilities to HMRC.
We consider the features of the new facility below:
LDF Mark 2?
In many respects the IoMDF replicates the favourable treatment available under the Liechtenstein Disclosure Facility:
- The IoMDF forgives any UK tax liabilities relating to years prior to 6 April 1999.
- The facility can regularise all of a taxpayer’s liabilities, not just those relating to IoM assets.
- The IoMDF incorporates a favourable penalty regime – the maximum penalty rate is 40% of the potential lost revenue to HMRC, as compared to 200% under the ordinary rules.
- Taxpayers may act to place themselves within the scope of the IoMDF by acquiring an appropriate IoM financial “footprint”.
Indeed, the IoMDF appears more generous than the LDF in respect of the footprint requirement. Whereas the LDF requires the taxpayer to have a significant connection to Liechtenstein – typically 20% of their worldwide undeclared assets must be held there – the IoMDF does not specify a minimum value. A single IoM bank account may be considered sufficient footprint to qualify.
Disadvantages and Exclusions
The IoMDF has certain drawbacks.
- Most notably it offers no immunity from criminal prosecution. While prosecution of IoMDF users is unlikely to be commonplace, this may be a concern for those disclosing past evasion.
- The LDF allows taxpayers to apply a composite rate of tax to their income and gains from 6 April 1999, in settlement of all tax liabilities. This is a particularly favourable treatment for taxpayers with undisclosed IHT liabilities, however it is not available under the IoMDF.
- Any taxpayer with Swiss bankable assets who falls within the scope of the UK/Swiss agreement will be ineligible for the IoMDF, as will anyone who is subject to an HMRC investigation as at 6 April 2013.
Anyone falling within the categories described above would probably be better served by disclosing under the LDF.
While the addition of yet another route for non-compliant taxpayers to regularise their affairs is to be welcomed, we do not view the IoMDF as revolutionary. Rather, it is the first step in the gradual spread of LDF-style disclosure arrangements to more jurisdictions. Similar facilities for the Channel Islands now seem very likely to be introduced in coming years. Guernsey Disclosure Facility or Jersey Disclosure Facility anyone?
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