THE Isle of Man has reaffirmed its national taxation strategy, including the introduction of a standard zero rate of income tax for business, following confirmation that the proposal is consistent with new European Union Union tax rules.

Brussels has agreed that the Island's move to a uniform system of corporate tax meets the European Union tax package's Code of Conduct on Business Taxation, which seeks the phasing out of special preferential rates for particular types of business.

Manx Treasury Minister Allan Bell MHK said: 'For the past three years the Isle of Man has been delivering a national strategy of driving down income tax costs for business. Our current standard rate is 10 per cent and we are on course for the zero target by 2006.

'We welcome the reassurance that the move is in line with the European Union Code of Conduct. This is a significant international endorsement of our taxation strategy and will provide the future certainty for which our industry has been looking.'

The tax package, now finally adopted by the European Union after five years of discussions, also includes the Savings Tax Directive. Under this measure member states, dependencies and relevant third countries are expected to introduce automatic exchange of information, or a withholding tax, in relation to the interest paid to individuals resident in an European Union Union country.

Announcing the Island's response to the directive, Mr Bell said: 'The Isle of Man has an established policy of respecting international standards on issues such as the exchange of tax information, on the basis that this provides a fair 'level playing field' between competing economies.

'The Island is already committed to the OECD's global standard of exchange of information on request. This is accepted by countries around the world, including the USA, with which we have signed a new tax information exchange agreement.'

Mr Bell went on: 'Taking into account the varying standards for exchange of information, it would be premature for the Isle of Man to make a general commitment to automatic exchange of information at this stage. However, we are not ruling out bi-lateral arrangements where there is a clear mutual economic benefit.

'We have therefore agreed to introduce a withholding tax when the directive takes effect, subject of course to the approval of Tynwald. This will apply only to European Union resident individuals, who may choose to opt out of the withholding tax by agreeing to the exchange of information to their European Union country of residence. It will not apply to business nor to individuals from outside the European Union.'

The Isle of Man's decision in favour of the withholding tax option, taken after consultation with its finance industry, is in line with the approach taken by three European Union members – Austria, Belgium and Luxembourg – as well as Switzerland and the Island's fellow British Crown Dependencies, Jersey and Guernsey.

Mr Bell concluded: 'The Isle of Man is not part of the European Union Union, but we have accommodated the tax package as an internationally responsible jurisdiction co-operating with our neighbours. The Island is a dynamic and highly competitive economy - and will remain so, as proved by our commitment to a zero rate of income tax for business.