The Isle of Man, out on a limb in the middle of the Irish Sea, does not often feature prominently on UK mainland news, but its position as a major European offshore financial centre makes it a player in the business and finance worlds.
The island does not fit the usual profile of an offshore financial centre. It has a diverse economy (including manufacturing), an extensive social security and national health system, and its net government expenditure runs at 52% of the gross national product.
But finance is still its biggest earner, accounting for 37% of national income. Business seems to be buoyant, with the economy growing at 7% per year.
The island is keen to expand its volume and range of business. One advantage is that there is plenty of space to expand. The Isle of Man's population density is eight times less than that of Jersey's – consequently, set-up costs for business are lower.
Richard Vanderplank is a partner at the island's largest law firm, Cains. "There is plenty of room and we do not have residency restrictions. We are well-placed to grow," he says.
The recent international success of the film, Waking Ned, one of about eight motion pictures shot on the island during the past year, shows that the Manx people believe that there is far more to the island than just tax.
Vanderplank adds: "The Isle of Man is trying to have a diversified economy that does not rely on finance: we also have agriculture, a film industry and light engineering. We are a real jurisdiction – not a tax haven."
In terms of the business sector, Vanderplank says there has been less work this year in relation to company incorporations, but this has been replaced by other work including asset and project finance.
He says the island is keen to encourage
e-commerce. "Many companies want to use the island for e-commerce. It will make large and small scale transactions easier."
He adds: "People feel positive about the future, and the quality of work we have been receiving continues to be of a very high calibre."
Recently, Manx Telecom has joined forces with Deloitte & Touche on a technical project to ease e-commerce, with the Electronics Transaction Bill currently going through the Manx Parliament.
Provisions were also announced in the Manx Budget statement last week for the island's government to foot the bill for anyone wishing to install ISDN and ADSL phone lines.
The threat of EU legislation against offshore centres is not considered an immediate problem, mainly because the Isle of Man is constitutionally independent of the UK and the European Union (EU).
Many commentators misunderstand the relationship between the Isle of Man, the UK and the EU. While it is a Crown dependency, geographically situated within the British Isles and acknowledges the Queen as its head of state, it is not a part of the UK. The UK's responsibility in respect to the island relates only to foreign affairs, defence and 'good government'.
The Isle of Man is not a member of the EU, although the Treaty of Accession 1972 (by virtue of which the UK became a member of the EU) extends certain EU provisions in respect of the free movement of agricultural and industrial goods.
The island is facing potential challenges from various quarters because of its perceived status as a tax haven. Such challenges take the form of international initiatives, and many are aimed at eliminating harmful tax competition.
In recent years, bodies such as the Organisation for Economic Co-operation and Development (OECD), the EU, United Nations and even the UK Government have all put the Manx tax regime under the microscope.
On 20 January, 1998, Home Secretary Jack Straw announced (without prior consultation with the Crown dependencies) the appointment of a former UK Treasury official, Andrew Edwards, to review with the authorities in Jersey, Guernsey and the Isle of Man the regulation of their financial centres, the combating of financial crime and co-operation with other jurisdictions. After detailed consideration of the infrastructures of such jurisdictions, the Edwards Report was published on 19 November, 1998.
The manner in which the commissioning of the report was announced gave rise to suspicion and irritation in the Isle of Man. But the Manx Government and business community welcomed the opportunity to demonstrate – to an independent third party – the sophistication and legitimacy of the matters subject to the review.
While the report made several recommendations that may be unacceptable to the Manx Government, by going beyond what is enacted in the UK and elsewhere, Edwards concluded that the Isle of Man is "in the top division of financial centres" with "remarkably good infrastructures".
The Isle of Man Government has discussed with the UK Home Office what action should be taken, based on the recommendations in the report, in addition to projects that were started before the announcement of the review. The report is an important endorsement of the credibility of the Manx finance centre.
"When the Edwards Report was released, it showed we were an extremely well-regulated jurisdiction," Vanderplank says.
Detailed legislation has implemented arrangements for the regulation of the providers of corporate services, including company management and administration services (CSPs). The UK does not have any similar or equivalent arrangements in respect of CSPs operating in or from the UK.
Once the legislation is activated, the operations of CSPs in the Isle of Man will be regulated, whereas similar activities in the UK and the EU will remain unregulated. This legislation will go a long way towards satisfying a number of the key recommendations of the Edwards Report.
Another charge, which is often levelled at the Isle of Man, is the accusation that it is a money-laundering haven. But in 1998 the island adopted anti-money laundering legislation and regulations that exceed the requirements laid down by the Financial Action Task Force and EU Directive 91/308.
The island's anti-money laundering regime is arguably stricter than that in force in any EU jurisdiction. The legislation and regulations make no exception for tax evasion and many view such offences as within the scope of the legislation and the regulations.
The OECD report relating to 'financial havens' is due to be released later this year.
While it is anticipated that the Isle of Man will be categorised as a financial haven, the report is also expected to include London, Hong Kong and Singapore in its preliminary list of havens. It is also concentrating, like the EU, on perceived harmful tax competition.
A list of harmful taxes were released by the EU at the end of last year; these were defined as measures in one jurisdiction that could have a detrimental effect on the tax regime in another state. The Isle of Man is noted along with other jurisdictions including the UK.
The last president of the island's Chamber of Commerce, John Webster, says there will be no reprisals over this or from the EU's proposals to introduce a withholding tax on savings. This relates to a proposed 20% tax on interest payments made from within one EU member state to citizens in another member state.
He says: "There has been no fundamental change on this matter, although there has been considerable discussion at EU level for some time.
"But UK Chancellor Gordon Brown has held out against imposing a withholding tax because of the effect it could have on the City of London."
The most topical issue in the Isle of Man is its constitutional relationship with the UK and the EU. These international initiatives have led to various legal arguments within the island.
If the initiatives produce taxation regimes and other policies that third parties seek to impose on the Isle of Man, judicial consideration of the respective merits of such legal arguments may become inevitable.
Despite the existence of the various initiatives and the distraction caused by dealing with them, business in the Isle of Man is flourishing.