Legislative Change Legislative Change Practitioners SeminarPractitioners Seminar

INCOME TAX DIVISION

The TreasuryMARCH 2003

AgendaArrangements Alice MartinIntroduction Ian KellyIncome Tax Bill (No 2) 2003

- Consultation Exercise John Williamson & Ian Kelly

QuestionsBreak

Income Tax Bill 2003 John Williamson & Ian Kelly

QuestionsClose Ian Kelly

Arrangements

• Fire Exit

• Questions

• Mobiles turned off please

• Copies of Slides available– On ITD website – Business card

Introduction

• Purpose of meeting

• Background to consultation document, illustrative clauses and IT Bill 2003

• Timescale

• Form of response– Write to John Williamson– Email to anita.quayle@itd.treasury.gov.im

INCOME TAX (No 2) BILL INCOME TAX (No 2) BILL 20032003

INCOME TAX DIVISION

CONSULTATION EXERCISE

Topics

A. Anti avoidance - Differential rates of tax

B. Power to call for documents

C. The Income Tax Commissioners

D. Land and property transactions

Anti-AvoidanceDifferential Rates of Tax

Directors and Participators Loan Accounts

Treatment of Loans

Loans through intermediaries

Release of Debt

Associated Companies

Directors and Participators Loan Accounts - Clause 38

• Companies which are chargeable at less than the higher rate chargeable under Section 1 (2A)

• Loans or advances to participators, officers and their associates

• Assessment on the company• Charge at the Section 1 (2A) rate• Exclusion of commercial loans• Clause 40 extends provision to intermediaries

etc

Treatment of LoansClause 39

• Loan includes incurring debt to the company and assignment of debt

• Excluding normal commercial relationships

• Excluding “small loans” to employees who do not have a material interest

• Repayment relief provision• Material interest set at 5%

Release of DebtClause 41

• Where loan is released or written off – Income tax charge on beneficiary

subject to credit

– No repayment of income tax

• Provisions in death cases

DefinitionsClauses 42 & 43

• Associated companies– Based on control

• Participator– Relative– Associate– Director– Loan creditor

Comments on Part A

• See commentary on page 3 of consultation document– Views on draft clauses in general– Views on how to prevent impact on

insignificant cases

• Views also welcome on (see A10)– Acceptable distribution policy– Loss relief

Power to obtain information

Clause 19 - 23: Power to call for documents

Clauses 24 - 27: High Court Orders for information

Clause 28: Falsification of Documents

Clauses 29 - 30: Entry with Warrant

Clause 31: Production and Auditing of Accounts

Clause 19 - 23: Power to call for documents

• Clauses 19 & 20 Documents of taxpayer– Reasonable opportunity to produce – Notice in writing with reasons– In persons possession (copies acceptable)

• Clauses 21 – 23 Protection and Limitations– Six year time limit other than fraud– Right of referral to Income Tax Commissioners– Protection for auditors and tax advisers– Specific exclusions for named documents

Clauses 24 - 27: High Court Orders for information

• Provision for High Court Order for failing to comply with written notice

• Notice of intention to apply for an Order

• Destruction of documents

• Protection for specific documents

• Documents in electronic or magnetic form

Clauses 29 - 30 : Entry with Warrant

• Requires authority of a Deemster

• Offence involving a suspected fraud

• Evidence to be found on premises

• Restrictions e.g. time of entry etc

• Procedure for removal of documents

Other Measures

• Clause 28 – Falsification etc of documents is an offence

• Clause 31 – Production and auditing of accounts– Ability to call for accounts – Ability to have accounts audited– Circumstances in which Treasury meets

audit cost

The Income Tax Commissioners

• The Tribunals Bill 2003

• Constitution of the Body

• Status of the Chairman

• Restrictions on Appointment

• Appeal from Commissioners Decision

• Amendment of Assessment

• Human Rights

Land and Property Transactions

• Income Profit or Capital Gain

• Artificial Transactions

• Serial Transactions

QUESTIONS

coffee

INCOME TAX BILL 2003INCOME TAX BILL 2003

INCOME TAX DIVISION

The Treasury

Arrangement of the Bill

Pt 1 : Personal Allowance Credit

Pt 2 : Protection of Information

Pt 3 : Information: International Obligations

Pt 4 : Miscellaneous Amendments and General

• Trading Profits (Temporary Tax Order)• Benefits in kind : valuation • Husband and Wife: assessment and allowances

• Bribery and collusion• Power to pay awards• Unlawful assumption of character of officer

Part 1 Personal Allowance Credit

Clause 1 : Purpose

• Repayment of unused personal allowances

Clause 2 - 4 : Quantification • Resident - Age 18 yrs• Married couples• Deaths - marriages - separations

Clause 5 - 8 : Calculation of credit• Formula• Married couples• No returns• Revision

Part 1 - Examples

Personal Allowance Credit

Example 1 : [Individual - 18 yrs - resident for tax year]

Low income point £6,000 : Gross income £5,500Maximum credit £200

Example 2 : [Individual - 18 yrs - resident for tax year]

Low income point £6,000 : Gross income £7,500Maximum credit £200 less (£1500 /10) ie £150 = £50

Example 3 : [Married Couple - 18yrs - resident for tax year]

Low income point £12,000 : Gross income £15,000Maximum credit £400 less (£3,000 /10) ie £300 = £100

Part 1 (cont’d)Personal Allowance Credit

Clauses 9 - 11 : Claim and payment• Claims form - return - information• Issue of a credit notice• Payment - interest on late payment

Clauses 12 - 16 : General• Disregard for other purposes• Set - off• Regulations• Calculation of gross income• Commences 6 April 2003 re 2002/03

income

Part 2Protection of Information

Clause 17 : Confidential Information• Disclosures updated and extended

Clause 18 : Supply and use of information• New S 106C : Disclosure to DHSS• New S 106D : Disclosure to Enforcing

Authorities• New S 106E : Disclosure by Authorities• New S 106F : Definitions

Part 3 Information - International

Clause 19 : International Information Exchange• Ratification process• CoMin Order - approval of Tynwald

Clause 20 : Restriction - incoming information• only for tax purposes

Clause 21 : Restriction - outgoing information• confidentiality - tax purposes

Clause 22 : Interpretation

Part 4Miscellaneous

Clause 23: Trading Profits

• Temp. Taxation Order 19 March 2002

• Non-Trading Income

Clause 24 : Benefits in Kind : valuation

• Anti avoidance

Clause 25 : Husband & Wife

• Assessment and allowances

• Year of Marriage / Year of Separation

Part 4 (cont’d)Miscellaneous

Clause 26 : Unlawful Assumption of

Character of an

Officer

Clause 27 : Bribery and Collusion

Clause 28 : Power to Pay Awards

Clause 31 : Coming into operation

QUESTIONS

What Next?

• International– OECD– EU: Savings Directive and Code of

Conduct

• Legislative Programme– Income Tax changes– Corporate Tax– Consolidation?

Reminder

• Comments on consultative document

• Copies of slides– On ITD website– Leave your business card

Thank you

Legislative Change Legislative Change Practitioners SeminarPractitioners Seminar

INCOME TAX DIVISION

The TreasuryMARCH 2003