IOM Tax Solutions

Attribution Regime for Individuals “ARI” (Withdrawn from 5 April 2012)

as applied to Trading and investment companies

 This new regime replaces the Distributable Profits Charge “DPC” which  the EU Code group found distasteful as resident/non resident companies were treated unequally with different tax rates being applied to resident and non resident companies. ARI fixes this by transferring the tax charge to individuals by attributing profits.  Resident individuals are taxed whereas non resident individuals are not. (Except income liable to tax at 10% on the company ie from IOM property).  As the differential treatment now occurs to individuals and personal tax it is thought that ARI is compliant with the EU code.   

 ARI is effective for all companies whose accounting period begins  on or after 6 April 2008.

 Individual is responsible for tax payment 

The fundamental point of ARI is that individuals are responsible for paying tax on profits.  One of the key differences is that under ARI if the qualifying level of distribution is missed (55%) then 100% of the profits are attributed.  Under DPC a charge was raised based on 55% so there is a significant difference here. 

Risk of adjustment to Tax computation 

It may be all very well that your accountant provides details of the distribution required and you pay a dividend equal to 55% of the profits.  However if the Income Tax Division successfully dispute a deduction the computation may be revised resulting in full attribution.  It is possible if 12 months have elapsed that this may not be rectified due to the time period for paying a “corrective dividend” having elapsed.

 Which Companies fall within ARI 

The legislation refers to the companies within the Scope of ARI as “Relevant Companies” which are any of the following:  One resident on the Island for tax purposes, one incorporated on the Island  or one managed and controlled on the Island.

Certain Companies are exempt from the charge

 Charities

Agricultural Societies and Agricultural Marketing Society

Friendly Society

Public Board and Authority

Approved pension Scheme

Licensed Bank or Building Society

Company Limited by Guarantee or club whose members cannot benefit

Company that pays Manx Income Tax at more than the  Standard Rate (10% Companies)

Companies Listed on a recognised Foreign Stock exchange

Investment Income in Companies (Trading Company) 

A further significant change has been to introduce a relaxation of rules in connection with the treatment of investment income.  Where the income source of the company is greater than 50% of its turnover, the whole of the company’s income will be treated as trading income.  The old DPC regime only allowed a maximum of £1.000. There will be a full attribution of profits to members of the company. Dividends paid out of the profits in the year or any future date are not chargeable to income tax.