Income Tax (Amendment)(No 2) Bill 2004 15 th November 2004

1. Practitioners Seminar Income Tax (Amendment)(No 2)Bill 200415th November 2004

2. Arrangements • Fire Exit • Mobiles turned off please • Copies of Slides available • On ITD website • Or leave a Business card • Health Warning – subject to Legislative process

3. Introduction - Purpose of meeting • Opportunity to meet Malcolm Couch • Tax Strategy update • Background to the next Bill • Inform on proposed timescale for the next Bill • Opportunity to consult / discuss • Details of the last Acte.g. Accounts basis • Policy within this Bill e.g. Distributions

4. Agenda Taxation Strategy update Ian Kelly Where are we up to? Next Steps Framework of IT (A) (No 2) Bill John Williamson Land Transactions Taxation of Non-residents Married Couples Alice Martin Undistributed profits Ian Kelly Personal Introduction Malcolm Couch Questions Panel Close Ian Kelly

5. Taxation Strategy Update Oct 2000 Taxation Strategy approved by Tynwald Oct 2002 Modified for Code of Conduct issues Oct 2003 Exchange of information May 2004 EU Savings Directive

6. Income Tax Legislative Programme Tax Strategy Aims - • Modernise the Income Tax System • Satisfy International Obligations • Simpler • Fairer • Protection of the Revenue

7. Legislative Programme • Income Tax Act 2003 • Income Tax (Amendment) Act 2004 • Income Tax (Amendment) (No.2) Bill 2004 • EU Savings Directive • Corporate Tax Bill • Pensions • Consolidation

8. Tax Strategy Update • Next Steps • Continue domestic changes • Reduce taxation for companies • General fee for companies • Corporate Tax • Removal of harmful practices

9. Income Tax (Amendment)(No. 2) Bill 2004 • Transactions in Land • Taxation of Non Residents • Married Couples Treatment • Undistributed Profits • Rates of Tax • Discounts • CT Annual Charge • Temporary Tax Order confirmation – Lower rate for companies • Miscellaneous amendments

10. Transactions in Land • Policy - Land is a national asset • Protect population from speculation • Avoid “quick fix” development • Everyone should benefit when value increases • Protect revenue take regarding “trading” in property • Stability of property market

11. The Proposed Mechanics • Retain current charging provision • Section 2 • Onus on us to prove “trading” income • Income Tax (Amendment) (No 2) Bill 2004 • New schedule • New charging provision; gain treated as income • 3 cases A, B, C and ability to prescribe D • List of circumstances outside the scope

12. Aim to charge • Property Developers who do not hold the land for 7 years • Persons who do not hold the land for five years, unless they have lived in the property as only or main residence for last 18 months • Persons escaping a charge because they have lived in the property for 18+ months, however they cannot meet financial commitments (living on development profits) • Ability to define further charge by Treasury Regulations if necessary

13. Outside the scope • Otherwise chargeable • Personal representative disposing of deceased person’s land • Inherited property • Leaving the Island (to take up employment elsewhere) • Disposal ‘outside their control’ • Disposal by Board, Authority, Crown or charity • Business property

14. Computation • Part of normal assessment • Treated as trading income but no Class 4 NIC • Proceeds less expenses ‘reasonable’ for a trade • Cost / MV • Valuation fees • Estate agents fees • Advertising • Legal fees • Enhancement expenditure

15. Key Issues • Clarity over ‘Land’ • Contracts within the scope • Date of disposal • Signing / exchange / money exchanges hands • Disposal ‘outside their control’ • Loss relief • Reporting requirements – advocates? • Clearance procedure for certainty

16. Taxation of Non Residents • Restriction of liability of Non Residents • UK S 128 concept • Allowances for Non Residents • Change to Income Tax (Amendment) Act 2004 rules

17. Married Couples • Consultation Document issued Oct 2003 • How to update the legislation to - • Make it compatible with European Convention on Human Rights • Improve fairness and equality of treatment • Retain benefits of aggregated treatment • Should other couples be included?

18. Married Couples • Feedback • Most supported continuation of “joint” treatment • Some favoured application to married couples only • More flexibility over time limits for elections • Keep it simple

19. Married Couples • Specific Issues • Respect confidentiality of married couples, unless they decide differently • Burden of taxation should not fall on one partner • Payments or repayments should be made to the individual or couple as appropriate • Increase time limits for election process

20. Married Couples • Independent treatment, or • Election for joint taxation • Aggregation of income, deductions, allowances and reliefs • Documents issued in joint names • Both signatures required on return forms • Named partner for correspondence & cheques • Partners will be jointly and severally liable

21. Married Couples • Election conditional upon both being – • Resident at start of the year and for the full tax year • Married and living together for the full year • New resident rules • Independent in year of marriage, separation or death • Transfer of unutilised allowances on • Marriage • Death • Transitional provisions

22. Distributable Profits • Why do we have to do anything? • 2 Regimes • Code of Conduct compliant • Protect the domestic tax base • Mixture of Primary and Subordinate legislation • Maintain competitiveness – Taxation Strategy

23. Distributable Profits • Distributing companies • Tax credit equal to rate of tax paid by company • Non-distributing companies • Deemed distribution • Distributable income • Taxable income e.g. includes Capital Allowances

24. Distributable Profits • Clubs & Associations outside the scope • Investment company 100% distribution • Trading company • Distributing company - basic test • Non-distributing company – 60% @ 18% • 10% rate companies • Rental income, property development

25. Distributable Profits Consultation • Definition of distributing company • Averaging, start ups • Administrative issues • Tracking dividends, returns, payments • Share Options • Anti-avoidance • Differential share regimes, winding up, liquidation

26. Personal Introduction • Malcolm Couch started work with the Income Tax Division on 1 November • He is working alongside Ian Kelly until the end of November • A combination of Ian’s support and the strong (and recently augmented) management of the Division will ensure a smooth handover

27. Personal Introduction • During a 15 year career in tax, Malcolm has gained wide experience in both the public and private sectors, and at the international level • His most recent role was with Shell as a tax manager in their North Latin America and Caribbean region

28. Personal Introduction • At a time of many challenges, the Income Tax Division remains committed to delivering change professionally within the context of the Government’s Economic Strategy 2004 • Consultation with the professions and industry continues to be a vital part of the way that we operate

29. Personal Introduction • Malcolm is delighted to have been appointed as Assessor and is looking forward to playing his part in ensuring the future prosperity of the Island and its people • He is married to Caroline, and has two young children who are now happily in school

30. ??????? QUESTIONS

31. Close • Modernise the Income Tax System • Satisfy International Obligations • Maintain a competitive tax environment • Continue working with the industry • Feedback comments to • E-mail – richard.carter@itd.treasury.gov.im • By 10th Dec 2004 please

32. Practitioners Seminar Income Tax (Amendment)(No 2)Bill 200415th November 2004