Offshore: The Isle of Man
13 June 2005
The deconstructionist theory ofpolitical history would indicate that, if empirical facts exist at all, they are secondary to the primacy of creating a persuasive and cohesive narrative. New Labour did it with devastating effect in the 1990s to prejudicially encapsulate Conservative rule. Last month's general election shows that the Tories have yet to reciprocate with their own seductive polemical narrative of the Blair Government.
Faced with a historic negative stereotypical view of tax havens, the Isle of Man has worked hard to construct, project and thereby seize its own narrative.
It has done this in a number of ways. First, by doing all that has been asked of it in a regulatory and anti-money laundering (AML) context by bodies such as the International Monetary Fund. This year will see the final piece in the jigsaw, with the introduction of a licensing system to regulate professional trustees. There has been mirror legislation to regulate corporate administrators for the last four years. Both pieces of legislation are centred around a 'fit and proper' test for licenceholders, comprising the integral properties of competency, solvency and integrity.
The new regulatory system will be managed by the island's Financial Supervision Commission, which has strived hard to ensure that the regulation of the trustee does not interfere with the regulation of the trust by the island's Chancery Court. A difficult balancing act, but one which has been sensitively achieved. Of course, the UK has no such analogous legislation.
In the early days of attempting to seize the narrative, the island put a lot of resource into the introduction of strict AML controls. This proved a very useful bulwark against the most common criticism levied against tax havens. It is fair to say that the island's actions in this area have enabled it to have moral authority over the metropolitan countries, including Organisation for Economic Co-operation and Development (OECD) members. Put simply, its standards are higher. There is obviously an anticompetitive cost to an overbureaucratic approach to 'know your client' (KYC) procedures in an AML context. It is likely, therefore, that the Isle of Man in 2005 will take careful note of the recommendations coming out of the UK's Joint Steering Group and the consequent more facilitative approach to a KYC verification which is likely to flow therefrom.
In a fast-changing world, of course, it is impossible for the island ever to contemplate regulatory stasis. Indeed, a Financial Supervision Commission consultative document was issued last week to consider material changes to the banking codes. Nevertheless, the narrative foundations are now laid.
A second area of narrative seizure has been in the field of tax. Criticism was levied by the EU (through the Primarolo Report) and the OECD (through the harmful tax competition initiative) at the island's use of ringfenced regimes. Ringfence in a tax context means being unfairly discriminatory between non-resident and resident corporates. This is in the sense of offering tax breaks to new residents that are not available to residents. The island's solution to this criticism was to commit to remove all ringfenced regimes and, in their place, introduce a zero-rate corporate tax by 6 April 2006. The island is on course to achieve this and the replacement regime has been accepted by the UK, EU and the OECD as being neither harmful nor in breach of perceived norms of international taxation.
The island is also committed to entering into OECD model tax information exchange agreements with any country that so requests. This is subject to the proviso that a tangible economic benefit to the island can be shown. To date, only one has been entered into, with the US. This is currently only applicable to criminal tax matters, but it will become effective for civil tax matters from 2006.
Many other agreements, with countries such as Germany, France and Ireland, are in the pipeline, awaiting the quantification of a collateral economic benefit. The Isle of Man Treasury has canvassed the private sector for assistance in helping to evaluate such benefits on a country-by-country basis.
Thus, the island, by constructively engaging with international initiatives in the fields of harmful tax competition and greater transparency, has been able to demonstrate tangibly its willingness to be a responsible member of the international community.
Infrastructure and society
The Isle of Man has also recognised another developing trend in a post-globalised environment - the ending of the sovereignty of nations and the beginning of the sovereignty of individuals.
To prosper, any country has to provide the political and social infrastructure to appeal to an increasingly mobile cognitive elite. This means that not only must the tax system be perceived as being relatively benign (and in this regard the island will shortly introduce a maximum-tax-paid cap for individuals), but also the living and working environment has to be both safe and stable and provide a level of support commensurate with such an individual's expectations. Accordingly, the island has invested close to £1bn over the last seven years on capital projects to renew the public service infrastructure in utilities, health, education and the environment. It has managed this and retained its AAA credit rating. The island spends more per capita on its education and health than the UK, and its pensions are materially more generous. It is a central tenet of the Isle of Man government's strategy that, for an economy to prosper, there must be a strong sense of community cohesiveness and security - a sense that prosperity in the long run is only worth having if all can benefit. Again, this almost Fabian approach is the antithesis of the ultra rich-ultra poor tax haven stereotype.
Economic diversity: shipping
The third area of this narrative seizure is to diversify the economy away from financial services, which account for some 42 per cent of the island's gross domestic product (GDP). In this regard, the island has had some notable successes. The international shipping industry is very buoyant in the island on the back of the worldwide boom. The tonnage on the Isle of Man register is now over the eight-million mark. The recently introduced super yacht register has done well and the island will shortly be introducing an aircraft register. All such registers bring business and high-net-worth individuals into an Isle of Man sphere of influence.
The rapid commercialisation of space has led to excellent opportunities for the island, not only in the financing and leasing of satellites, but also in areas such as the acquisition by the Isle of Man of valuable satellite frequency slots. This is an exciting arena, as space companies progressively move from government ownership to venture capital involvement to a listing. The worldwide satellite communications market is already estimated to be worth e300bn (£202.77bn), and its participants have no stereotypical view of the island which need breaking down.
Indeed, the island's excellent telecommunications infrastructure is a material draw to the space industry. The current capacity provides for 15 million simultaneous calls, or 1.5 million broadband customers downloading simultaneously. And the island's population is just 76,000.
The Isle of Man is also pushing ahead with a 3.5G programme and its internet and broadband penetration is the highest, or very near the highest, in Europe. Another industry sector making use of this telecoms capability is that of e-commerce. After several false dawns, a viable cluster has developed with companies such as the rapidly growing e-cash provider Neteller.
The movie industry has been one of the island's great success stories of the last decade. To date, the island has made some 68 feature films and a host of TV programmes. The Manx government, through its film commission, provides up to 25 per cent of a film's equity financing. In the last 12 months the island has played host to 'A' listers such as Johnny Depp in the forthcoming film The Libertine (saved by the Isle of Man after the UK Government closed a tax break) and Penelope Cruz in Chromophobia (the closing film in Cannes last month). It was announced in mid-May that the Isle of Man will film the hugely popular Alex Rider 'Stormbreaker' books. The film industry is universally seductive in its allure. It is a powerful antidote to a perception of Victorian seaside holidays under leaden skies.
In its desire to attract these new and exciting areas of the economy, it has been important for the island not to forget its current business core. In this regard it is intended that the island launch a new company law within the next 12 months. This will manifest a corporate vehicle which will be modern, easy to use and facilitative for international business. The legislation has been developed by local firms Cains and Dickinson Cruickshank & Co, assisted by Professor Hay of Stikeman Elliott and Terry Mowschenson QC of Wilberforce Chambers, acting under the aegis of the chief financial officer of the island's treasury, the chief executive of the Financial Supervision Commission and the Isle of Man attorney-general.
In order to draw all these individual storylines together and thereby create a coherent branding narrative, the island has, over the last 12 months, embarked on a national branding project. A firm of national branding consultants, Acanchi, was appointed in January and, during the course of the next six months, a series of brand propositions will be tested on the local population and selected persons internationally. It is accepted that for a national brand to create momentum is a prerequisite so that it has a powerful emotional resonance to the ordinary person. It must be a collective expression of belief by the citizen and not a top-down mandate from government or the business sector. In the latter cases, it would probably be perceived as a marketing campaign and quickly fade from consciousness.
It is still, perhaps, too early to evaluate properly whether the island's own narrative will win out. What is certainly true is that the presentation of the island in the international media is a lot more complex, interesting and positive than it was a decade ago.
Andrew Corlett is managing director of Cains Advocates and a member of the Isle of Man National Branding Sterring Comittee