Isle of Man: The Jurisdiction that Refuses to Call a Rat a Rat

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By Matthew Dove

There’s two things Manxes can’t stand; taxes and rats. Corporation rates are set at 0% and those pesky rodents are only ever referred to as longtails or “big fellas.” As TFT’s Matthew Dove set off for Douglas, he wondered if this fledgling tech hub was really just another glorified tax haven. What’s more, could he get anyone on the Isle of Man to call a rat a rat?

Disembarking a Loganair twin-engine propeller plane at Ronaldsway Airport, I was reminded, rather worryingly, of the 1973 British horror classic, The Wicker Man. I found myself fearful of suffering the same fiery fate as Edward Woodward’s stoic policeman at the hands of a murderous island cult. So great was my trepidation that I began to exhibit the same manic affectations as Nicolas Cage in the ill-fated 2006 remake of the aforementioned frightfest (The bees! The bees! – Ed. okay that’s enough). 

It was a great relief then to be greeted, not by an native islander (of whom I’d convinced myself to be terrified) but a Polish taxi driver named Christoph who proved a most convivial tour guide. Christoph spoke of his adopted home warmly and introduced me to the taxonomy of “big fellas” as well as the island’s mythic fairy bridge. As one passes over this innocuous road bridge, it’s considered good luck to greet its fantastical guardians with a wave and a kind word. It’s a rite Christoph felt important enough to insist I observe, which I duly did.

the Isle of Man is brimming with happy campers, particularly those who happen to enjoy camping.

Christoph’s Manx zeal isn’t the exception but rather the rule on an island with a considerable surfeit of cheerleaders. Peppered throughout accounts of fintech innovation and a business-friendly administration were rhapsodies on the myriad delights the place has to offer its inhabitants. Whether it be the world famous TT course, nonexistent crime rate, short commutes or line-to-plate seafood, the Isle of Man is brimming with happy campers, particularly those who happen to enjoy camping.

THE HUBB

Advertised as having superfast wifi and complimentary cookies, “The Hubb” in the centre of Douglas is a near perfect embodiment of the Isle of Man’s digital aspirations. The government-sponsored blockchain and emerging technologies incubator aims to promote the social benefits of relocating to the island as much as the commercial. 

The Hubb’s CEO, Jason Isaacs, is an enthusiastic convert having “fallen in love with the place” after making the leap from Manchester. The 24-year old is also emblematic of the Manx can-do attitude. Boasting a strong background in tech and business (this guy was selling web hosting services when he was twelve!), Isaacs speaks fondly of a jurisdiction which “facilitates an ability to do business.” However, this business-first approach can prove worrisome.

The Hubb in the centre of Douglas is a near perfect embodiment of the Isle of Man’s digital aspirations.

When discussion turned to the island’s unemployment rate, which sits at an astonishing 0.7%, Isaacs offered a slightly jarring analysis. The Hubb’s commander-in-chief would rather up to 4% of the Isle of Man’s 84,200 denizens were jobless. The reason? Because it would be better for business. 

John Hunter, the head of banking and fiduciaries for IoM’s Department for Enterprise, agrees that near total employment “has the potential to limit growth.” In order to remedy this predicament, the government tasks Locate Isle of Man with attracting talent, as Hunter puts it, “to meet the needs of business.” 

To assess the representation of big business on the island I needed look no further than the office I was sitting in. The Manx government set up its very own Blockchain Office and Sandbox in February of this year and it resides in the Hubb under the stewardship of Lyle Wraxall. Key to the operation is regulatory lead, Steve Billinghurst, who has acted (and continues to act) as PwC’s advisory director on the island since 2013. 

Neither is the affable Mr Billinghurst alone, the big four alum has a total contingent somewhere north of 100, including 13 partners/directors. At a low estimate, that’s 1 PricewaterhouseCooper for every 752 islanders!

THE GHOSTS OF ATHOL STREET

My visit to the Hubb led me to ruminate on the potential pitfalls of such a strident state-backed pro-business stance. This by turns, led me, quite literally, to a street synonymous with the darker side of the island’s economic model. Locals joke that Athol Street is shady on both sides and, on inspecting some of its occupants, one can easily see why.

Despite the exotic name, the fallout from 2017’s Paradise Papers leak wasn’t localised in tropical climes but spread the world over. Details of a massive offshore economy, complete with Byzantine tax vehicles, shadowy practices and their elusive benefactors, were made public. 

Those named and shamed included the usual suspects like Vladmir Putin, Facebook and Bono, as well as those you’d hope would know better, like Her Majesty the Queen (say it ain’t so!).

And where did these files originate? The leak sprung from legal services company, Appleby, which has offices in the Cayman Islands, Bermuda and – you guessed it – the Isle of Man, 33/37 Athol St, Douglas to be precise. Not that their neighbours at No. 41 got off lightly as they were roundly criticised for advising a Canadian ticket tout (and Appleby client) in his efforts to avoid paying UK taxes. They’re a little consultancy called KPMG, you may have heard of them. Like PwC, they too have more than 100 employees on the island.

The spectre of the Paradise Papers still looms large over Athol Street and does little to enlighten that notorious shade. 

Locals joke that Athol Street is shady on both sides and, on inspecting some of its occupants, one can easily see why.

BLOCKCHAIN ISLE 

Leaving Athol Street behind, as I’m sure my hosts wished the media as a whole would, I set off in search of a fresh vein of Manx innovation. 

My first stop was Solutions Hub, a crypto and blockchain advisory at the pointy end of the sector and clearly relishing the challenge. Along with “supporting the island’s first tokenised blockchain fund” CEO Lee Hills was keen to tell me about Solutions Hub’s other vanguard achievements. The advisor was instrumental in the issuance of a world-first blockchain gambling licence as well as utilising the Isle of Man’s Designated Business Act regulations to launch AML/CFT-compliant ICOs.

Joining Solutions Hub at the forefront of Manx DLT innovation are established locals CoinCorner and Quanta. The former is a Bitcoin brokerage and something of an institution, having operated on the island since 2014 with a workforce that’s 85% Manx. Quanta, on the other hand, is a decidedly global prospect with staff from Nigeria, Japan and Greece to name but a few. Led by Ray Davies (not that one), Quanta is the world’s first fully licensed blockchain lottery and straddles effortlessly the faultline between emerging tech and good ol’ fashioned gambling. 

All three enterprises are uniquely Manx, honing their craft in the island’s commercial microcosm before turning their focus to conquering global markets.

how is the Isle of Man such a nice place to live if no one’s paying any taxes?

DATA AND EXCHANGE

One business already seizing the global initiative is Manx Telecom, which is busily exploiting the island’s geopolitical assets to cement itself as a centre for secure data storage. With the world’s longest continuous parliament, little threat of terrorism or domestic discord, the IoM is a pretty safe bet for organisations with information to protect. It’s these same conditions which make the island a fine place to raise children (at least that’s what another patriotic cab driver told me anyway).

The data centre I visited is one of three and sits 150m above sea level with a power supply which runs at a 2-megawatt capacity. Everything is doubled up; two back-up generators, two air conditioning units, plus 500 tonnes of battery power just in case. Even the temperature and humidity are monitored and optimised to ensure client servers are snug as bugs in rugs. Not that there’s any bugs to be found, no longtails either…

Meanwhile, down at the waterfront, Carolyn Gelling and the International Stock Exchange (TISE) are helping to secure funding for “incubator investments.” 

Despite having welcomed what is thought to be the first regulated listing of notes digitised on a blockchain, TISE sees the island’s future not solely in blockchain and e-gaming. When I asked Gelling about the narrowness of IoM fintech offerings, she answered “I can see more diversification happening naturally.” 

If all this undiluted positivity hadn’t given me cause enough to question what kind of Faustian pact these guys had got themselves into, Gelling offered another reminder that “the Isle of Man is a really nice place to live.”

By this point I was I considering emigrating myself but I still had a few questions that I needed addressed. Top of my list was; how is the Isle of Man such a nice place to live if no one’s paying any taxes?

WHEN IS A RAT NOT A RAT? 

When I caught up with John Hunter for a one-on-one, he first lamented the weather. Next, he lamented the pervasiveness of what he sees as misconceptions about the Isle of Man.   

It was “blowing a hoolie” (or stormy in local parlance) so we’d be unable to take a tour of the island’s more mountainous scenery. Nonetheless, a lowland drive was sufficient to map the terrain. 

As we saloomed through winding lanes on our way to historic Peele, Hunter was eager is dispel one especially bothersome sobriquet; tax haven. Hunter is adamant that the notion of the Isle of Man as a safe harbour for dodgy characters and their opaque interests was “killed off a long time ago.” He insists that IoM is simply “tax neutral” and boasts a “leading AML regime.”

This line of logic does little to convince the likes of Richard Murphy who lectures in international political economy at City University as well as holding a directorship at Tax Research LLP. He argues that whilst “you may claim to be “offshore”; you prefer to be called “an international finance centre”. Best of all is the claim that you are “tax neutral” (which means: “We don’t charge tax, but don’t want to admit it”). But nothing gets round the truth that what tax havens really do is help to abuse the world’s tax systems and in the process mount a challenge to market-based capitalism and even democracy itself.”

Another uncomfortable topic is the common purse agreement which entitles the Isle of Man to a share in the United Kingdom’s customs and excise revenues. To its critics, the arrangement is deeply one-sided and allows the island access to revenue disproportionate to what it collects, effectively making it a subsidy. 

Visiting the island is like being shown around a beautiful house which happens to have a rodent problem.

Alistair Darling reduced the purse post-financial crisis but under Tory governance the island’s take has slowly risen and now sits somewhere in excess of £300 million a year (as estimated in 2017). Using the Manx government’s own records for 2017/18, it follows that the common purse accounts for around one third of total governmental income.

When I asked Hunter if he knew the exact figure for last year’s purse revenue, he said he didn’t but was confident that it’s in “a good place.” A good place indeed, as Manx Radio reported last month;

“Government income for the last financial year has revealed a more than £30 million revenue surplus.”

SLANE LHIAT (FAREWELL)

The charms of the Isle of Man are abundant. The people are warm, the scenery is spectacular and its culture is rich and diverse. The foundations of Royal National Lifeboat Institution were established on the island in the 1800’s. The Manx government gave women the vote as early as 1881. Hell, even pilates was invented there! Unfortunately, that’s not the full picture.

Visiting the island is like being shown around a beautiful house which happens to have a rodent problem. You can raise questions about the rat situation as much as you like, the owner’s response will always be the same; “Those aren’t rats, they’re longtails.” 

A fast follower when it comes to business and regulation, “the Isle of man is really good at learning from the mistakes of others.” However, the question remains whether it’s any good at learning from its own.

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