Brexit - the potential impact on the Isle of Man & Turnstone
The impending referendum in the UK on whether to leave or remain within the EU will affect not just the mainland UK, but also the 14 Overseas Territories and 3 Crown Dependencies. The Isle of Man is one of the 3 Crown Dependencies, and Turnstone, which is a trust and corporate services provider, is based there.
The Isle of Man’s relationship with the EU is governed by Protocol 3 of the UK’s 1972 Accession Treaty, and as a consequence receives free access to the “Common Market”, as it was once called, for agricultural, fisheries and manufactured goods, but not for service industries, such as the trust and financial services industries, which generate the bulk of the island’s income and employment etc, however. Accordingly, I do not envisage that Turnstone will be directly affected in terms of a Brexit.
The one main area where Turnstone would be indirectly affected would be the area of VAT (Value Added Tax), as the Isle of Man is part of the European VAT zone (whilst the likes of the Channel Islands, ie Jersey & Guernsey, are not). One might think that an exit of the EU would hence have a much greater effect on the Isle of Man, but this may not necessarily be the case. The UK cannot re-engineer its finances (at least not in the short term) to do without VAT, and nor could the Isle of Man, and thus VAT will remain for the foreseeable future (and in all likelihood ad infinitum, although it could be labelled differently). What a Brexit would allow the UK to do would be to amend the rules unilaterally to take advantages of commercial opportunities, or to redress imbalances as they saw them, which they would never have been able to achieve through Brussels. An amended VAT arrangement for the Isle of Man, so that its only contracting party was the UK rather than the other 28 Member States, might also allow the Island some greater leeway in the way VAT is applied to the various industries within its economy. This could be attractive to parts of the Financial and Professional Services sectors / businesses (including Turnstone) which currently have to charge VAT to individual customers, who in turn are unable to reclaim the VAT and therefore suffer a 20% uplift in fees, which they otherwise do not suffer when buying the same service from the Channel Islands. To the extent that the Isle of Man is able to reduce its prices to the international market place by 20%, this is something that the Channel Islands should be particularly concerned about – and indeed, the Channel Islands are a major competitor to the Isle of Man as far as trust and corporate services are concerned.
However, there are businesses that have established themselves specifically on the Isle of Man to take advantage of the fact that the Island is part of the EU VAT zone, and to use the Island as a point of entry into the EU market. The advantage here is that a Company can establish itself on the Island and register for VAT, and supply goods to all 28 Member States without having to register elsewhere in the EU (subject to certain rules), and yet still enjoy the Island’s 0% Corporate Tax rate. A Brexit is therefore likely to negatively impact this line of business in the Isle of Man.
One is very unlikely to hear the main parties involved in the referendum campaign mentioning the impact of the vote upon the likes of the Isle of Man and Channel Islands over the next few weeks. However, whilst the result may have significant consequences for certain industries based in these islands, Turnstone is not waiting nervously on the result!