Legislative Change Practitioners Seminar INCOME TAX DIVISION The Treasury MARCH 2003

Agenda Arrangements Alice Martin Introduction Ian Kelly Income Tax Bill (No 2) Consultation Exercise John Williamson & Ian Kelly Questions Break Income Tax Bill 2003 John Williamson & Ian Kelly Questions Close 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 – to

INCOME TAX (No 2) BILL 2003 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-Avoidance Differential 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 Loans Clause 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 Debt Clause 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

Definitions Clauses 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 : Power to call for documents Clauses : High Court Orders for information Clause 28: Falsification of Documents Clauses : Entry with Warrant Clause 31: Production and Auditing of Accounts

Clause : 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 : 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 : 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

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INCOME 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 : Quantification Resident - Age 18 yrs Married couples Deaths - marriages - separations Clause : 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 £5,500 Maximum credit £200 Example 2 : [Individual - 18 yrs - resident for tax year] Low income point £6,000 : Gross income £7,500 Maximum credit £200 less (£1500 /10) ie £150 = £50 Example 3 : [Married Couple - 18yrs - resident for tax year] Low income point £12,000 : Gross income £15,000 Maximum credit £400 less (£3,000 /10) ie £300 = £100

Part 1 (cont’d) Personal Allowance Credit Clauses : Claim and payment Claims form - return - information Issue of a credit notice Payment - interest on late payment Clauses : General Disregard for other purposes Set - off Regulations Calculation of gross income Commences 6 April 2003 re 2002/03 income

Part 2 Protection 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 4 Miscellaneous 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 Practitioners Seminar INCOME TAX DIVISION The Treasury MARCH 2003