Harmful Tax Practices – 2017 Peer Review Reports on the Exchange of Information on Tax Rulings

Isle of Man

The Isle of Man has met all aspects of the terms of reference (ToR) for the calendar year 2017 (year in review) and no recommendations are made.

The Isle of Man can legally issue two types of rulings within the scope of the transparency framework.

In practice, the Isle of Man has issued two past rulings; and for the year in review, the Isle of Man did not issue any future rulings within the scope of the transparency framework.

No peer input was received in respect of the exchanges of information on rulings received from the Isle of Man.

Introduction

605.  This peer review covers the Isle of Man’s implementation of the BEPS Action 5 transparency framework for the year 2017. The report has four parts, each relating to a key part of the ToR. Each part is discussed in turn. A summary of recommendations is included at the end of this report.

A. The information gathering process

606.  The Isle of Man can legally issue the following two types of rulings within the scope of the transparency framework: (i) cross-border giving a unilateral downward adjustment to the taxpayer’s taxable profits in the country giving the ruling; and (ii) permanent establishment rulings. In the Isle of Man, the Income Tax Division is authorised to issue rulings.

Past rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1, I.4.2.2)

607.  For the Isle of Man, past rulings are any tax rulings within scope that are issued either: (i) on or after 1 January 2015 but before 1 April 2017; or (ii) on or after 1 January 2012 but before 1 January 2015, provided they were still in effect as at 1 January 2015.

608.  The Isle of Man notes that the Income Tax Division did not maintain a central list of rulings for the “past ruling” period, so the identification process undertaken involved a manual review of the taxpayer files. A project team was established and the review was undertaken by the most senior technical officer in the Income Tax Division. This senior technical officer has been involved in technical casework, which would involve the issuing of tax rulings of any type, since 2007.

609.  The senior case officer reviewed the taxpayer files of all taxpayers which were subject to the higher tax rate of 10% applicable in the relevant period (banking, real property and certain retail businesses) and considered likely to engage in cross border transactions and/or to have a related party in a foreign jurisdiction such that there would be exchange of information required under the Action 5 Report. The tax files of those taxpayers which were subject to the standard nil tax rate were not reviewed, as there would be no need for them to obtain the type of rulings from the Isle of Man in the scope of the transparency framework. The date and scope of the ruling were identified from the correspondence held in the taxpayer file. The review process was completed by 30 November 2017.

610.  In order to identify potential exchange jurisdictions, the “best efforts approach” was used as the rulings process at that time did not include the gathering of all of necessary information on relevant jurisdictions required by Action 5. In all cases the information was taken from public information on the companies register and/or from the group structure or equivalent sections on the companies’ own websites, and all relevant parties and potential exchange jurisdictions were able to be identified.

Future rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1)

611.  For the Isle of Man, future rulings are any tax rulings within scope that are issued on or after 1 April 2017.

612.  For the year in review, the process for the identification of future rulings was similar to the one used for past rulings and involved a manual review of the correspondence on each taxpayer file to verify whether rulings had been issued since 1 April 2017 that are in scope of Action 5. The review process was completed by 30 November 2017. Although the identification process was completed late in 2017, in practice there were no future rulings issued in the relevant period and therefore no adverse practical impact resulting from this process.

613.  In order to identify potential exchange jurisdictions, the Isle of Man indicates that the rulings application process was updated and includes a new rulings application form published on the Income Tax Division website. All corporate taxpayers are required to submit a rulings application form if they are applying for a ruling which falls within scope of Action 5 and even for those rulings which are out of scope. The new form requires the taxpayer to provide all of the necessary information required to identify the relevant jurisdictions for exchange as required by Action 5. Rulings falling within the scope of Action 5 will not be issued without receipt of a completed application form.

614.  It is noted that in 2018 the Isle of Man has established a central database of tax rulings which includes the date of issue and the type of rulings to facilitate the timely identification of future rulings within the scope of Action 5. The process for granting a ruling has also been updated to ensure that all rulings applications are referred to one of the three technical officers for initial review and allocation, then back to the senior technical officer for final sign off and notification to the Competent Authority.

Review and supervision mechanism (ToR I.4.3)

615.  The Isle of Man Income Tax Division set up a project team to review all rulings issued within the scope of Action 5 and the process was supervised by the most senior technical officer in the Income Tax Division. The review process for both past and future rulings was completed by 30 November 2017 which allowed sufficient time for the past rulings identified to be exchanged by 31 December 2017. The caseworkers who form part of the project team are technically trained members of staff in relation to the income tax technical aspects of the ruling.

Conclusion on section A

616.  The Isle of Man has met all of the ToR for the information gathering process and no recommendations are made.

B. The exchange of information

Legal basis for spontaneous exchange of information (ToR II.5.1, II.5.2)

617.  The Isle of Man has the necessary domestic legal basis to exchange information spontaneously. The Isle of Man notes that there are no legal or practical impediments that prevent the spontaneous exchange of information on rulings as contemplated in the Action 5 minimum standard.

618.  The Isle of Man is a party to international agreements permitting spontaneous exchange of information, including (i) the Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol (OECD/Council of Europe, 2011) (“the Convention”), (ii) double tax agreements in force with 10 jurisdictions, all of which allow for spontaneous exchange of information and (iii) more than 30 Tax Information Exchange Agreements, of which four permit spontaneous exchange of information.1

Completion and exchange of templates (ToR II.5.3, II.5.4, II.5.5, II.5.6, II.5.7)

619.  Once a ruling is identified as being in scope and is approved by the senior technical officer, the latter notifies the Competent Authority that uses a separate recording system to generate either a paper template compliant with Annex C of the 2015 Action 5 Report (OECD, 2015) or an XML Schema template for the identified ruling, depending on the recipient jurisdiction’s chosen method of exchange. The Competent Authority also reviews the completed template and approves it for exchange or rejects it and requests the missing information necessary for exchange. The completion of the XML template is monitored by the XML schema validation. Both templates are supported by a guidance note with answers to basic questions. The Competent Authority deals with the more detailed questions, if necessary.

620.  The Isle of Man indicates that the internal FHTP suggested guidance was not specifically utilised to complete the summary section of Annex C for the past rulings exchanged, but the notes for guidance for completion of all sections appended to Annex C were used. The Isle of Man indicates that the internal FHTP suggested guidance will be used when completing the summary sections for all future rulings as prescribed by the internal processes for completing that section of the template.

621.  Annex C forms for each past ruling were completed and submitted to the Competent Authority by mid-December 2017 for exchange by 31 December 2017. As no future rulings were issued during the review period, no exchanges were required. However, in the event a future ruling is issued, the rulings process includes a step to ensure that all future rulings falling within the scope of Action 5 are notified to the Competent Authority within 30 days of the ruling application being approved or rejected. The rulings index in the central database, which contains all data necessary for the exchange, will be reviewed on a quarterly basis to ensure that all rulings approved/rejected since the last review have been or are made available to the Competent Authority.

622.  For the year in review, the timeliness of exchanges is as follows:

 

Past rulings in the scope of the transparency framework	Number of exchanges transmitted by 31 December 2017	Delayed exchanges
		Number of exchanges not transmitted by 31 December 2017	Reasons for the delays	Any other comments
	3	0	N/A
Future rulings in the scope of the transparency framework	Number of exchanges transmitted within three months of the information becoming available to the competent authority or immediately after legal impediments have been lifted	Delayed exchanges
		Number of exchanges transmitted later than three months of the information on rulings becoming available to the competent authority	Reasons for the delays	Any other comments
	0	0	N/A
Total	3	0

 

Follow up requests received for exchange of the ruling	Number	Average time to provide response	Number of requests not answered
	0	N/A	N/A

Conclusion on section B

623.  The Isle of Man has the necessary legal basis for spontaneous exchange of information, a process for completing the templates in a timely way and has completed all exchanges on time. The Isle of Man has met all of the ToR for the exchange of information process and no recommendations are made.

C. Statistics (ToR IV)

624.  The statistics for the year in review are as follows:

 

Category of ruling	Number of exchanges	Jurisdictions exchanged with
Rulings related to preferential regimes	N/A	N/A
Cross-border unilateral advance pricing agreements (APAs) and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles	N/A	N/A
Cross-border rulings providing for a unilateral downward adjustment to the taxpayer’s taxable profits that is not directly reflected in the taxpayer’s financial / commercial accounts	0	N/A
Permanent establishment rulings	Included in de minimis	N/A
Related party conduit rulings	N/A	N/A
De minimis rule	3	N/A
IP regimes: total exchanges on taxpayers benefitting from the third category of IP assets, new entrants benefitting from grandfathered IP regimes; and taxpayers making use of the option to treat the nexus ratio as a rebuttable presumption	N/A	N/A
Total	3

D. Matters related to intellectual property regimes (ToR I.4.1.3)

625.  The Isle of Man does not offer an intellectual property regime for which transparency requirements under the Action 5 Report (OECD, 2015) were imposed.

Summary of recommendations on implementation of the transparency framework

 

Aspect of implementation of the transparency framework that should be improved	Recommendation for improvement
	No recommendations are made.

References

OECD (2017), BEPS Action 5 on Harmful Tax Practices – Terms of Reference and Methodology for the Conduct of the Peer Reviews of the Action 5 Transparency Framework, OECD/G20 Base Erosion and Profit Shifting Project, OECD, Paris. www.oecd.org/tax/beps/beps-action-5-harmful-tax-practices-peer-review-transparencyframework.pdf.

OECD (2015), Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris. https://doi.org/10.1787/9789264241190-en.

OECD/Council of Europe (2011), The Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264115606-en.

Note

← 1.  Parties to the Convention are available here: www.oecd.org/tax/exchange-of-tax-information/convention-on-mutual-administrative-assistance-in-tax-matters.htm. The Isle of Man has bilateral agreements in force with Bahrain, British Virgin Islands, Cayman Islands, Estonia, Guernsey, Jersey, Luxembourg, Malta, Qatar, Seychelles, Singapore, Turks and Caicos Islands, United Kingdom and United States.