FT SPECIAL REPORT Doing Business in the

Thursday November 15 2012 www.ft.com/reports | twitter.com/ftreports

Manx society faces Inside » Finance Island is having to cope with an ever- reduced state role growing burden of global regulation Page 2

Andrew Bounds finds a model of European welfare combined with low Manufacturing Output spans a taxes being re-examined as revenues fall and slowdown hits the banks range as wide as that of an economy 10 times its size t first glance little seems to aerospace, nurtured by government air of hypocrisy” about some British have changed on the Isle of support. rhetoric. Page 2 Man. It has just posted its It has also created successful ship The UK government has attacked 28th year of economic and aircraft registries, which bring the behaviour of offshore centres growth, the bars of Douglas business to the island’s professional while encouraging French investors Profile Ateem with suited bankers and lawyers communities by arranging mortgages to flee high taxes there and crowing and horses still pull trams along its and companies to own the assets. about reductions in corporate tax lur- Maker of kitchens, seafront during the summer season. The attraction of an online gaming ing back multinationals. adapted for the Yet it is facing its toughest test cluster has blessed it with impressive However, he says the relationship since its offshore financial sector was IT infrastructure. It invested in the with the UK had “calmed down a bit” disabled and established in the 1980s in response to good times in plentiful power and since the revenue sharing changes. elderly, goes global a deep recession. road infrastructure, which could be “We need to protect the economy,” Its model of European welfare com- augmented by offshore wind farms in says Mr Bell. “We are anxious to see a Page 2 bined with low taxes is being re-exam- the Irish Sea. level playing field. You look to Asia ined as revenues fall and the global Nevertheless, Standard & Poor’s, and see Singapore and Hong Kong slowdown hits its banking sector. the rating agency, downgraded its and other emerging centres and ques- Once unheard of, industrial strife is AAA credit rating a notch in Novem- tion whether they are following the growing: state-employed bus drivers ber 2011, citing external factors. It same standards. I still have to be con- have been dismissed for refusing to retains a AAA rating from Moody’s. vinced that the regulatory pressures accept the loss of paid lunchbreaks, Mr Bell says: “We have to recognise are applied equally to competitors.” while civil servants grumble about government cannot provide every- As part of its diversification the redundancies and curbs on their pen- thing in the way it has in the past island’s government in October took a sions. and, if we are going to maintain a 9.99 per cent stake in Pinewood Shep- , the experienced former competitive tax structure...there perton, the film studios, and gave treasury minister who now heads the have to be limits. Tax increases would Pinewood access to £25m of public government as chief minister, has be totally counterproductive.” money to invest in films. Filming drawn up an “agenda for change” set- That requires means testing would be done at the studios and on Economy ting out a smaller state and fewer child benefit and squeezing some the island. Pinewood is owned by benefits while maintaining the “cohe- savings reliefs to bring the budget John Whittaker, the billionaire chair- Changes to a VAT sion of Manx society”. man of Peel Holdings, the property, agreement He says the economic change – media and logistics group, who lives Headwinds: the island is facing its toughest test since the 1880s Alamy have hit the chiefly driven by the UK revising an Once unheard of, industrial on the island and discussed the deal agreement in 2009 on how to share directly with Mr Bell. shipping registry value added tax revenue, which strife is growing, with bus , a minister who was says: “Maintaining zero corporate tax he is worried that its air links could slashed government finances by about sacked for voting against the Pine- is vital. It has got to be a government be reduced. Page 3 a third – represents an “opportunity drivers sacked and civil wood deal, says he fears that govern- strategy. They have made all the right Easyjet has begun services from and a challenge”. servants grumbling about ment plans for outsourcing or “corpo- noises but, until you see that [budget] Liverpool, using large 150-180 seat air- “The Isle of Man is starting from a ratising” services to cut costs could gap closed, there is a degree of con- craft, while Flybe has the biggest net- Commentary position of strength. We have avoided redundancies reinforce a too-cosy relationship cern. I would like to feel 100 per cent work, using 80-seat aircraft. Easyjet is recession and unemployment is still between the government and busi- certain. It is an island and not every- offering cheap new capacity he says Questions are low,” he says. Gross domestic product ness. “It is a system built on patron- body wants to live on an island. If we but, with 700,000 passengers a year, being asked per head is higher than in the UK. into balance by 2015-16. age,” he says. His Liberal Vannin want to bring quality employees over, bigger aircraft could mean fewer But with the UK economy sluggish, Nevertheless, the island has a party is calling for an inquiry into the they have got to see the benefits.” flights. about the morality the euro crisis spreading uncertainty, stronger revenue base than many off- Pinewood deal. There are also worries about access. “The island can have economy or of tax planning and regulatory pressure increasing, shore jurisdictions because of its 20 However, Mr Bell wants to make Mr Bell admits that he has concerns frequency,” he says. “we have to be swifter in identifying per cent VAT rate shared with the more use of the wealthy on the island. over a proposed offshore wind farm in He welcomed a review announced Page 4 new niche opportunities for the future UK. It also attracts companies that Teaming up with Peel Holdings in British waters that could interfere on the open skies policy, citing the to enable us to continue the growth can register for VAT there and trade other areas would enable it to funnel with the vital Steam Packet ferry example of Guernsey, which still con- we have enjoyed now for 28 years”. in the European Union. overseas investment to northwest service from Liverpool and Heysham. trols access to its airport to ensure Professional As a self-governing dependency of The top rate of income tax is 20 per England and show that the island “is “We can’t afford any disruption to operators can make money and pro- the British Crown, the 81,000 strong cent and there is no inheritance tax, a genuine partner for good, not a tax the sea links. It is the lifeline for the vide frequent flights. services island has not hesitated to adjust its stamp duty or capital gains. Banks haven on a sandspit in the Irish Sea”, island. For our business community Nevertheless, most businesses Expansion reaches laws to attract business. are the only businesses subject to tax, he says. and for manufacturing in particular,” remain committed to the island. Bill It is an important operator in the at 10 per cent. Despite the commitment on tax, an he says. Mummery, executive director of beyond law and space industry, with one in four satel- Mr Bell says that, while the island increase from 18 to 20 per cent in 2010 Noel Hayes, chairman of Celton Manx, an egaming company, accountancy lites launched last year being owned would continue to comply with rele- has made business leaders nervous. Manx2.com, which charters regular quotes the latest marketing slogan: on the island. It retains a strong man- vant international tax and money Garth Kimber, chief executive of Xela flights to unscheduled destinations “‘The Isle of Man, where you can’. It Page 4 ufacturing industry, especially in laundering agreements, there was “an Holdings, an online gaming company, such as Gloucester and Belfast, says does what it says on the tin.” Lights, camera but Asia internet slightly less action gaming on a roll

he says. “Since then, the additional tax revenues. However, the path chosen Gambling challenge has been manag- Film However, changes to has caused controversy, ing growth.” value added tax rules that with seven members of Andrew Bounds The island is on the UK’s Andrew Bounds put an end to the island Tynwald, the parliament, reports on a new white list, allowing licence finds the industry’s keeping the VAT earned on voting against and one min- holders there to serve UK cinema screenings in the ister being sacked for doing revenue source that punters. Celton’s main oper- attractions are being UK have hit the industry so in June. The government accounts for almost ations are in the Philip- outmatched by rivals hard. decided to take a stake in pines, where it runs live The UK and Ireland then Pinewood Shepperton, the 10 per cent of GDP casinos for its website and extended their own tax famous studios near Lon- its customer service teams. breaks. It costs about don where James Bond But the Isle of Man has The Isle of Man may be £250,000 extra to make a movies are made, and allow Away from the Victorian huge data storage centres small but it is adaptable. It production on the island. it to use £25m of its publicly terraces of the lawyers and that are not vulnerable to has featured as the slums of From a high of 12 in 1997, funded Media Development bankers in downtown Doug- typhoons, vast broadband Victorian Bristol, the roll- only two productions were Fund (MDF) to invest in las is a glimpse of the and satellite communica- ing hills of Ireland, the rug- made there in 2011. The films. This gives Pinewood future for the Isle of Man. tions capacity and the ged coast of Cornwall and number of days of filming the ability to create demand On the edge of an indus- banking facilities to handle even urban locations such has fallen from 830 in 1997 for its studios, while many trial estate stands a modern clients’ money. as Boston and Hamburg in to 25 in 2011. outdoor locations would be edifice clad in local stone Hence egaming, one of some of the 100 films shot “The competitive offer of on the island. The plan to On location: Dom The Public Accounts There is a lack of transpar- with huge floor-to-ceiling the island’s newest indus- there since 1995. the Isle of Man to film pro- take a 19.99 per cent stake Hemingway, Committee (PAC) of Tyn- ency and accountability.” windows. It is Celton Manx tries, is one of its fastest Stars such as Johnny ducers is now relatively was reduced to 9.99 per cent currently in wald had criticised the gov- , treasury House, the new home of the growing. From a standing Depp (The Libertine) and poor compared to its com- and purchased for £12.2m at production and ernance arrangements of minister, admits the deal Asian company behind the start a decade ago it now Claire Danes (Me and Orson petitors, lagging both the the end of October. starring Jude Law the MDF. was controversial. “It has SBOBet internet gaming accounts, with information Welles) have set foot on the UK and Ireland in terms of Pinewood was bought a and Richard E. Grant, The Treasury waived the been an unusual step brand. technology, for about 9.7 island, bringing a touch of tax incentives, local cost year ago by John Whit- was filmed partly on need to put the contract out but...it was quite clear Bill Mummery, executive per cent of gross domestic glamour – and much needed structures, skills and the taker, the billionaire chair- the island to tender, a move the PAC that the offering we had director of Celton Manx, product. spending in its restaurants variety of image locations man of Peel Holdings, the said should not be repeated, was no longer attractive. says it is a statement of his As well as Celton, 188Bet and hotels offseason. for film making,” Oxford property, media and logis- while the attorney general “Teaming up with a name business’ commitment to is headquartered on the The first film was The Economics concluded. “Not tics group, who lives on the ruled that CinemaNX did such as Pinewood Shepper- the island. His corner office, island, Paddy Power has a Brylcreem Boys, the 100th only is the Isle of Man rela- Isle of Man. not need an investment ton gave us extra leverage lined with prints of the base there, along with soft- was Dom Hemingway, a tively uncompetitive when In 2007 management of licence. and . . . they recognised our island, commendations for ware companies enabling gangster film with Jude it comes to attracting film- the MDF was handed to It has refused to publish strong position in the inde- the group’s charity work the online growth, such as Law and Richard E. Grant, makers, it is also operating CinemaNX, a Manx com- accounts, as it can legally pendent film sector and the and photographs of Mr Playtech and Microgaming. that is still in production. in a declining market.” pany, to run. Steve Chris- do, although it gives 20 per expertise we have there. Mummery’s encounters There are not, however, According to a report by Hilary Dugdale, who runs tian, the co-founder of Cine- cent of its profits to the gov- They wanted to diversify with the sporting elite – huge numbers of jobs Oxford Economics, the con- the government’s film unit, maNX, has taken a board ernment. One year’s from the big budget films, SBOBet sponsors West Ham (about 750), admits Tim sultancy commissioned by Isle of Man Film, says the seat at Pinewood and four accounts were published at the Bond films, to try to get United and the Manx Crane, the government’s the government, the film government’s proactive staff have transferred to the the insistence of the PAC, other films as well. The ini- national football team, for egaming ambassador, but industry brought £81m in help, such as closing roads studios. which showed the bulk of tial indications have been example. they are well paid. “It has benefits and created 2,140 and providing equity fund- Mr Christian and Ivan CinemaNX’s revenues came very good.” “Celton came here in 2005 been a very important con- full-time equivalent job ing, was no longer suffi- Dunleavy, Pinewood Shep- Closing roads and from interest on the MDF. He could not outline what because it wanted a quality tributor to our economy.” years. cient to entice filmmakers. perton chief executive, have providing equity The , investment targets had jurisdiction. You have the It also provides the The government has She says it is important to joined Prosper Capital which has two members of been set. “We have got English legal system, regu- demand to justify invest- invested £170m (in 2011 bring in the spending of which is already licensed by funding is no longer parliament, is pressing for a access to their [CinemaNX] lation specific to the indus- ment in data centres and prices), which has gener- film crews, which also pro- the Financial Services further inquiry into the accounts as treasury but we try and, as most of our mar- telecoms infrastructure that ated £85m from producers vided temporary jobs for Authority, as well as regis- sufficient to entice Pinewood deal. Kate have got to recognise there kets are outside the EU, we helps all businesses. Licen- through the equity share of many on the island and tering Pinewood Film filmmakers Beecroft, one of them, says: has to be some degree of pay VAT only on the reve- sees pay £35,000 plus 1.5 per revenues and £375m from that change is needed. Advisers with the FSA. “This is taxpayers’ money. confidentiality.” nue we generate in the EU,” Continued on Page 2 . 2 ★ FINANCIAL TIMES THURSDAY NOVEMBER 15 2012 Doing Business in the Isle of Man Plan to win customers in emerging markets

Financial services Government strategists are developing country-by-country approach to promotion of specialist skills, writes Brian Groom

inancial services remain the aim is to promote the range of serv- year. The life assurance sector, which business from family trusts to vehi- activities. One issue will be what bedrock of the Isle of Man’s ices the island has to offer. includes many of the biggest names, cles for owning yachts and aircraft. flexibility, if any, banks on the island economy, despite the island’s Its main pillars are banking, insur- such as Royal Skandia, Friends Provi- “Those that have a more diversified have over which of their activities are successful push to diversify ance, the fiduciary sector and invest- dent and Axa, is a big strength. Single presence are faring better than those ringfenced. into areas such as e-gaming, ment fund management and adminis- life premiums from the UK have stag- that have their eggs in one basket,” The Isle of Man is also considering Fmanufacturing and information tration. nated, but regular premiums for life says Mark Denton, managing director its approach to the EU’s Solvency II technology. Banking is the biggest employer and pension products in Asia and the of SMP Partners and chairman of the insurance capital regime. It may seek The financial sector makes up with just under 3,000 staff. The East are growing healthily. Association of Corporate Service Pro- equivalent status for its life assurance 35 per cent of gross domestic product island’s 18 banks, like elsewhere, have “Future growth is going to come viders. “Some of the smaller firms sector, but not for captives. and employs a quarter of the working struggled with the low interest rate from the developing world,” says may combine with others in the Companies must adapt to a rapidly population. Its share of GDP has environment and global deleveraging. David Kneeshaw, chief executive of island or be swallowed up.” changing commercial situation. fallen from 48 per cent in 2001 as Deposits have fallen from £57bn in Royal London 360° and chairman of The fund management and adminis- Anthony Long, chief executive of Cap- other parts of the economy have 2008 to £47bn, but there are signs of the Manx Insurance Association. “It is tration industry, which employs up to ital International, a family-owned pro- expanded, but it still contributes to stabilisation. Output rose by 4 per really important that the Isle of Man 1,000, expanded rapidly before the vider of investment services, says the growth. Life assurance is the most cent in 2010-11, according to govern- is seen by regulators round the world, crisis and has been hard hit since lengthy global downturn is “really buoyant area. ment figures. Banking accounts for 11 politicians and advisers, as a safe then. Funds under management have Ita McArdle: targeting niche funds starting to bite. We, and indeed the “The Isle of Man is quite resilient per cent of GDP. place to put clients’ money.” fallen from $58bn in 2008 to $22bn. But Isle of Man, have fared very well so because it is a well balanced economy “It’s not easy for anyone, but I’d say The island also has a fairly stable Ita McArdle, a consultant who chairs far, but we have seen a flattening of and its financial services are spread we are holding our own. We adjust to sector of captive insurers, which the Isle of Man Fund Management US’s Foreign Account Tax Compliance our growth this year”. across a number of disciplines,” says the environment,” says Mark Water- insure risks for parent companies Association, has seen a shift in senti- Act, a far-reaching law designed to Its turnover had been growing by John Spellman, the island’s director house, chief executive of Zurich Bank ranging from financial groups to utili- ment in the past couple of months. smoke out tax-evading Americans 15-20 per cent a year, but technologi- of financial services. “It’s a very chal- International and chairman of the Isle ties, manufacturers and airlines. “We are seeing a lot of new inquir- holding money abroad, under which cal change is making UK rivals more lenging market out there and, like of Man Bankers’ Association. Despite a “soft” global insurance mar- ies and a significant number of people bank and investment details held by competitive. That means the firm others, we have had job losses, but There are hopes of attracting new ket which does not favour captives, converting it into business,” Ms US citizens in other jurisdictions will must deepen automation to cut its also, luckily, we have been able to banks from emerging markets to the there has been an increase in inquir- McArdle says. The island is particu- be handed automatically to the US own costs, but there could also be generate opportunity.” island – and, even if that fails, says ies about setting up new ones. larly targeting early-stage funds in authorities. A deal similar to that opportunities as larger firms out- The Department of Economic Devel- Mr Waterhouse, existing banks hope The fiduciary sector, which has innovative niches. reached between the UK and the US is source operations such as custody and opment is developing a country-by- to offer services, for example, to Chi- about 1,900 staff and accounts for Amid rapidly evolving financial likely. treasury. country strategy to win its share of nese companies exporting to Europe. nearly 5 per cent of GDP, saw output markets, the Isle of Man must also The island is also considering care- “Financial services are still taking wealth and corporate business in Insurance, employing nearly 2,000, grow by 15.6 per cent last year after a cope with an ever-growing burden of fully the impact of Sir John Vickers’ steps forward,” says Mike Hennessy, emerging markets, recognising that has the biggest share of GDP of any flat period following the economic global regulation, on which it is work- UK banking reforms, which will chief executive of the Chamber of those such as China, India and the sector of the economy at 14.7 per cent. crisis. It has 200 licensed trust and ing closely with Jersey and Guernsey. ringfence banks’ retail businesses Commerce. “But it is a challenging Middle East have differing needs. The Its output grew by 22.8 per cent last corporate service providers handling The latest difficulties include the from their investment banking environment, no doubt about that.”

Food and drink DLP Global maker of products for disabled and elderly

An industrial estate on the you can modify people’s support a wheelchair. enjoy growing edge of Douglas, surrounded homes, as their mobility AKW was established in by outlets such as Pets at reduces, they can stay there 1990 in Worcester but Home and double glazing longer. Most people want to started shower tray salesmen, is the last place stay in their own home and it manufacturing on the Isle of reputation you might expect to find a is an awful lot more cost Man in the 1990s. It then global manufacturer. effective for the state,” he moved into kitchens. Now Yet Tim Baker, finance says. the challenge is to create director of DLP, a maker of The UK accounts for 90 products that are not just drink: the Isle of Man kitchens and bathrooms per cent of sales, but DLP functional but also attractive. Manufacturing Creamery’s cheese is widely adapted for the disabled and also sells in Belgium, France They include a built-in hob available in UK supermar- elderly, says it is the perfect and other European countries. that can be lowered for a Andrew Bounds kets. location. It has a distribution wheelchair user. reports on industrial One of the latest is the “It is a lightweight, agreement in the US and is A small team of designers Apple Orphanage company, relatively high-value hopeful of fast growth there. works above where the prowess across wide which produces apple juice. product,” he says, so the Mr Baker admits the UK fibreglass shower trays dry, range of products Its founders William cost of shipping materials in public sector budget cuts testing taps, smashing Faulds, 28, and Charlotte and out is offset by the zero have hit sales but he believes worktops and creating new Traynor, 28, met at Leeds corporate tax rate. “It is a an ageing population offers products. From apple juice to University. multipurpose manufacturing massive potential. The latest is a shower for watches, space equipment Mr Faulds had returned Core activity: William Faulds and Charlotte Traynor make 4,000 litres of apple juice a year facility. It is small batches, “Increasing longevity gives the partially sighted. Big to aircraft landing gear, the to the family farm – which flexible, with short lead us a great opportunity. It has buttons feature Braille and it Isle of Man’s manufacturing he claims has the “wettest times. We can take an order been a niche market. What is incapable of getting to a sector spans as wide a field on the Isle of Man” – island, including Ronald- skilled engineers and the can get straight through to in the morning, schedule a we see happening is people, scalding temperature. The range as a country 10 times and started making juice sway Aircraft Company and department is working with somebody who can help.” product in the factory, have as they are having to provide head swivels while still in the its size. from the small orchard his GE Aviation, which makes local employers to set up a Bodystat, a maker of it out on the last boat of the for themselves, will move into holster, reducing the chance Making up 5 per cent of parents kept. landing gear but has been training college. “There is a medical devices, has also day and it’ll be in our a future-proofing mentality.” of it being dropped. the economy and employing He and Ms Traynor then put up for sale by its US skills gap,” says Mr Teare. grown with the help of gov- Skelmersdale hub in the That attracted ECI Partners, While much production is 3,000 people, the industry is hit upon an innovative idea owner. “We are trying to upskill ernment grants. Sakkie early hours of the morning.” a private equity house, to mechanised, the final enjoying the manufacturing – to source more apples Eddie Teare, treasury the younger section of our Meeuwsen, founder and The Isle of Man has back a management buyout assembly is labour intensive, resurgence worldwide. The from hobby growers who minister, notes: “The evi- community. There are jobs. chief executive, moved the worked for DLP, which in 2008. with workers standing at island has an aerospace had more than they needed. dence of water on Mars was It is matching those unem- business there from South trades under the AKW There are 5,000 products counters to add joints and cluster, high-tech engineer- In return for the apples, found by a piece of kit ployed with the opportuni- Africa in 1990 in order to medicare brand. “We have because of the differing sizes seals on to shower screens. ing businesses and a range they would receive bottles made on the island.” ties.” gain access to the European been in the market for 25 of showers and kitchens. The government has given of food and drink providers of juice. Adrian Moore, head of Target Tools, a supplier of market. The machines can years and are the market They include shower screens grants towards new that are moving into Ms Traynor recalls: “The machine tools and parts, is monitor the status of leader in the UK,” Mr Baker with small windows for machinery, part of its exports. first time we did it, we had a vital link in the supply patients and are also used says. carers to gain access. They package to help The latest fillip came people queuing round the chain, says Mr Moore. by athletes to measure their The company has a £40m have to be tough enough to manufacturers. when its famous queen block to drop off their Simon Radcliffe, director, fat levels. turnover and 260 “We provide the kind of scallops were added to an apples. We must have had co-founded it in 1994 to sup- They are used by employees, with 70 on the jobs needed on the island,” EU list of more than 1,000 10 tonnes of fruit.” 80% ply general engineering researchers looking for new island and most of the rest says Mr Baker. “Not products whose names are For each 3kg, growers tools. But it has recently drugs. Some hospitals and in the UK. All design, everyone wants to work in protected by law. receive a 250ml bottle of Part of Target Tools’ turnover focused on aerospace, GPs are adopting smaller research and financial an office.” The company has Last year the Isle of Man juice. Many are single vari- accounted for by the which accounts for 75 to 80 units for diagnostic tests. “I activity takes place on the taken on several young “Queenie” won the UK ety, such as the Andrew aerospace industry per cent of turnover. could analyse two patients island as well as some unemployed and unqualified Sustainable Seafood award Johnson, only found on the “We have developed a lot with the same condition assembly. Units are sent to workers to give them a after years in which Manx island. of business in the UK. We and tell you if one is going the main manufacturing and chance under another fishermen worked with the They made about 4,000 manufacturing at the have even sent tools to to die and the other not,” distribution facility in government supported government to protect the litres this year in a barn Department of Economic China for our customers,” Mr Meeuwsen says. Having Droitwich. scheme. “There is a strong marine environment. Now converted for the purpose Development, says the busi- he says. Government grants just built a new headquar- It sells mainly through work ethic in here,” Mr Brussels has added more and have planted their own nesses are linked with the for capital assistance and a ters outside Douglas, he occupational therapists, who Baker says. protection for the Queenie orchard to scale up the UK through the North West zero corporate tax rate com- says the company is on the recommend products, and to “We have great growth by declaring it a “Protected business. It makes a profit, Aerospace Alliance. Some pensate for high transport verge of rapid growth. charities and councils opportunities. The challenge Denomination of Origin”, but not enough to support have 20-year contracts with and power costs,” he says. “I would not like to be running care homes. “They is to make the right joining Champagne and the pair, so they still live on Rolls-Royce for its new “There is great support running a small business in choose by brand or brand choices.” Parmesan. the farm. Trent engines. for the industry on the the UK. With all the red equivalent so you have to The island has a growing There are about 17 aero- The next challenge is to island. If we have a problem tape and health and safety get yourself on the list. If Functional but attractive Andrew Bounds reputation for food and space companies on the ensure there are enough we ring the ministry and it must be a nightmare.”

Asia internet gaming on a roll Contributors »

Continued from Page 1 its own citizens, the UK is the big Asian gaming com- proposing a move to a panies are now on the Andrew Bounds cent on the first £20m of “point of consumption” island and the government Northern Correspondent and gross gaming yield annu- model in which money needs to work on attracting Enterprise Editor ally. There are 47 licence would be levied depending more business service pro- holders but Mr Crane says on where customers are, viders for the industry to Brian Groom the policy objective is not where the businesses ensure the cluster remains, Business and Employment “quality, not quantity”. they bet with are. “Globally whatever changes there are Editor Industry executives agree there is a move towards tax to international regulation. that the US move against and regulate. Governments Micrograming, a provider Stephanie Gray Manx-based PokerStars, are looking for new ways to of casino and online gaming Commissioning Editor which runs online poker generate revenue.” software, established its HQ rooms, for money launder- on the island in 2001 and Steven Bird ing, illegal gambling and employs about 80 people. Designer bank fraud, has reinforced Playtech, the market its reputation. Manx regulator leader worth £1bn, this year Andy Mears PokerStars struck a civil insists clients’ moved its country of domi- Picture Editor settlement with the US cile from the British Virgin Department of Justice in money is kept Islands to the Isle of Man, For advertising details: July, paying back $571m to already its HQ, as it moved contact: Julia Woolley; the government and reim- ringfenced from Aim to the main list in phone +44 (0) 1473 652964 bursing the non-US players London. e-mail [email protected] of Full Tilt, a rival, for “The Isle of Man under- or your usual FT $184m but admitted no He believes the EU, where stands the industry. It is a representative. wrongdoing. member states operate as good place to base a busi- PokerStars acquired the individual markets, will ness,” says Roger Withers, All FT Reports are available assets of Full Tilt, which eventually create a single the chairman. on FT.com at ft.com/reports was also charged, as part of market in betting. He says recent growth, Follow us on Twitter at the deal. While PokerStars’ Garth Kimber, the gov- driven by mobile devices, twitter.com/ft.reports players had been protected ernment’s former egaming will continue. by the Manx regulator – ambassador, was head- “There is a heck of a lot All editorial content in this which insists clients’ hunted by Xela Holdings, of growth to come. Most of supplement is produced by money is kept in ringfenced another Asian company, the social networks are the FT. accounts – those at Alder- last year to establish a base moving into games and will ney-based Full Tilt were out on the island. He says the need a partner. We have the Our advertisers have no of pocket until PokerStars company wanted access to world’s biggest library of influence over, or prior sight took it over. Europe and the possibility casinos and games and of the articles or online Anxious not to miss out of listing there one day. these can be applied to material. on gambling revenue from However, he says most of social networks.” FINANCIAL TIMES THURSDAY NOVEMBER 15 2012 ★ 3 Doing Business in the Isle of Man Changed tax deal puts squeeze on growth

Economy Rare for the developed world, the island has escaped recession but it is nonetheless feeling the fiscal pressure, reports Andrew Bounds

ith growth running at Dick Welsh, director of the island’s 3.4 per cent in 2010-11 ship registry, says the registry has and estimated at the continued to gain ground with larger same rate this year, the boats, thanks to its quality service Isle of Man is one of few and low fees, overtaking Norway and Wareas in the developed world to have the US to become the world’s 15th escaped recession. largest. While its financial services industry Fees are charged at a flat rate, has shrunk slightly – its share of whatever the size of the boat. It had gross domestic product has remained 436 merchant ships at August 31 and a stable at about 35 per cent since the total tonnage of 14.3m. financial crisis – other sectors such as The maritime industry employs egaming and manufacturing have about 580 people with average salaries achieved strong growth. of £35,000 and £20m in local spending. Nevertheless, it is feeling the fiscal The aircraft register won its 500th squeeze as much as its neighbours in customer this year. Ireland and the UK after the loss of It has had much success by enroll- about £200m a year in value added tax ing leased aircraft while parked or revenue from changes made to its between customers, says Hartley “common purse” sharing agreement Elder, director of civil aviation. with the UK that are less favourable The island is hoping to enter the to the island. renewable energy market. GDP stood at £3.5bn in 2010 and the Ken Milne, of the Department for island has no debt. Inflation has Economic Development, says it is begun to fall sharply after increases negotiating with wind energy produc- in VAT, food and energy prices are ers to extend the Irish Sea farm into filtered out. the island’s territorial waters. It owns Eddie Teare, treasury minister and the seabed. But the island’s 90MW a retired senior banker, says: “We are demand is too small for such wind still growing, although it is an econ- farms so it would need a deal to sup- omy of two halves. The economy that ply surplus energy to the UK. faces out to the wider world is grow- Meanwhile, Sefton Group, the coun- ing well but the one that is dependent try’s biggest leisure group, says it is upon the local spend is coming under performing strongly. “We are a micro- pressure. There is pressure on the cosm of the Manx economy,” says construction industry, hotels and lei- Brett Martin, chief executive. sure. But we are still creating jobs.” While business travel is down, its A national insurance holiday for four-star Sefton Hotel, Palace Hotel companies taking on staff has created and Casino and Sefton Express budget 250 new jobs. hotel by the airport have benefited “The overall level of unemployment from robust local spending. is still low at 2.2 to 2.3 per cent but I Mr Martin says Manx residents still am not complacent.” had cash to spend, and with fewer Mr Teare has outlined a four-year splashing out on foreign holidays, plan to balance the budget, using more were taking cheap breaks in £91m of its £1.5bn reserves to cushion Douglas for the theatre or other the blow. events. “We are looking more at spending The group made a modest operating cuts in a measured way,” he says. profit but fell to £6.3m loss in 2011 “This year, we are using £55m from because of interest rate swaps and reserves, 1.5 per cent of GDP. I felt the UK was vital for competitiveness. years ago. Owners of yachts who want requirements, to win some business. Foreign visitors losses on property sales. that was as much as we could do in “It gives us advantages for compa- to register them on the island for VAT Most Isle of Man companies have flock to the Manx Mr Martin says events such as the one step. It is a fine line between GDP stood nies that want to establish companies purposes, allowing the VAT bill to be now had to open outposts on the Med- Grand Prix Manx Grand Prix motorcycle races cutting and impacting on business at £3.5bn in in the UK,” he says. “The Isle of Man paid over the 20 year life of the boat’s iterranean island, he says, incorporat- motorcycle races and the End 2 End mountain bike confidence.” can handle all VAT affairs. Traders mortgage, now have to visit the island ing the yacht company there but Tony Goldsmith race across the island were attracting The budget should be balanced by 2010 and can talk to the one VAT office.” to be eligible for the benefit. using the island for back office work. more and more foreign visitors. 2015-16. The cuts will amount to VAT changes have had other Chris Allix, director of Dominion “You will still use the Isle of Man Mr Teare says the government will £214m with £26m tax increases and the island effects. Its successful shipping regis- Marine, who has been registering but not for everything,” he says. do more to promote these. £103m in spending cuts. has no debt ter, which generates income for corpo- and managing yachts since 1984, The number of superyachts regis- “We have got to recognise that peo- However, he says retaining joint rate services providers, has been hit says the changes had allowed tered has hovered at about 100 ple come here for the scenery and value added tax arrangements with by a change made by the UK five Malta, which did not have the same since 2010. activities.” 4 ★ FINANCIAL TIMES THURSDAY NOVEMBER 15 2012 Doing Business in the Isle of Man Under pressure over the morality of tax planning

just low taxes, but also proximity to the City of London – through which it gains much business and to which it contributes capital flows – along with pragmatic regulation and a wide range of expertise. It is stepping up marketing in emerging economies with a country- by-country strategy that recognises Brian Groom that what works for India may not do so for China or Abu Dhabi. Some think the Isle of Man was Many countries and other offshore slow off the mark: its success will centres would envy the Isle of Man. depend on how well it can harness Amid global financial turbulence, its the range of products and services it economy grew by 3.4 per cent in offers. 2010-11 – a 28th year of continuous In meeting its fiscal challenge, the expansion – and it is estimated to be government has already made some performing similarly well in 2012. tough decisions. It has squeezed The island’s inhabitants are mortgage interest relief and acutely aware, however, that they announced that universal child cannot afford to be complacent. It benefit will be means-tested from faces four notable challenges. April 2014. First, it must continue to show the The government is cushioning the adeptness that has allowed it to fiscal squeeze by drawing on develop niche opportunities to reserves over the next three years, diversify its economy in fields such but expenditure has to come down as e-gaming, space and advanced manufacturing, along with aircraft and shipping registries. Second, it has hard choices to Excalibur Almaz, a locally make to balance its budget by 2015- based company, said it 16 after the shock in 2009, when the UK Treasury rewrote the “common would be ready to take purse” agreement that determines how revenues from value added tax passengers on private are shared, cutting government lunar expeditions by 2015 income by about £200m a year. Third, it needs to market itself effectively, particularly in financial services, to claim its share of the further, which means rethinking market for managing the growing elements of its generous welfare wealth in Asia, the Middle East and state. other emerging economies. It is aided by the fact that most of And fourth, it must continue to its politicians are independents, so it respond to international pressure is a judgment about fairness rather against low-tax financial centres, than an ideological battle. which is strengthening because of Meeting global pressure against tax the higher taxes and drastic havens is in many ways the hardest spending cuts that people in larger task, even for a co-operative economies are suffering. jurisdiction that has for more than a That pressure is entering a new decade tried hard to meet the phase: people are questioning not requirements of the EU, OECD and just the legality, but the morality of the International Monetary Fund. tax planning. Allan Bell, chief It is not easily ducked. Abiding by minister, recently told Tynwald, the accident: it has painstakingly set out company, says it will be ready to others leap in is getting shorter. Space age: sector is the rules is one thing, but one island’s parliament: “This change in to exploit new niches so as to avoid take passengers on private lunar The financial sector, which still forecast to generate £1.7bn person’s aggressive tax avoidance is attitude is being played out in the over-reliance on financial services. E- expeditions by 2015. The sector is accounts for 35 per cent of GDP, is turnover over the next another person’s legitimate tax media, on the streets of capital cities gaming alone now accounts for 9.7 forecast to generate £1.7bn turnover itself diverse, with four strong three years Charlie Bibby planning. and in political actions that we per cent of gross domestic product. over the next three years. pillars: insurance, banking, fiduciary Asked how the island would react ignore at our peril.” Space is the most eye-catching What has helped the island to (trust and corporate service if one of its companies was accused have a history of niche. An array of aerospace, space develop these niches is its ability to providers) and investment funds. of the former, Mr Bell says: “We resilience and pragmatism. One of its tourism and satellite communications move quickly in creating the right Strong growth in life assurance is would be very concerned if we were strengths is that, for an island of businesses is located on the island. It legislation and regulation. Other more than making up for a flat seen as being used for that purpose only 81,000 people, it has a could even win the race to fly a jurisdictions are latching on to this picture in banking and a decline of and I am sure we would take remarkably varied economy. tourist around the Moon after technique, however: the time funds under management. appropriate action to ensure the That did not come about by Excalibur Almaz, a locally based available to exploit a niche before The island’s attractions include not loopholes were closed.” Sector grows in sophistication, experience and global outlook

Grant Thornton. leader in aircraft registra- Cains has built a reputa- Professional services David McGarry, KPMG’s tion. tion as legal adviser to Rus- Isle of Man managing direc- “When the register first sian and Indian companies Brian Groom finds tor, has seen his staff grow started, we thought there coming to list in London. diversification into from five to 110 since 1982. would be 12 in the first The island has become a He acknowledges that year. We have had 500 air- bigger host of non-UK Aim pensions advice and things have got tougher craft in the first five years.” companies than any other management of since the financial crisis. Each aircraft brings jurisdiction. “We have not had a dip between £15,000 and £20,000 That work has dried up yachts and aircraft [in turnover] but we are not in annual revenue to corpo- since 2008, but Cains is still growing at the rate we were rate service providers, winning work on debt four or five years ago.” issues in markets such as As the Isle of Man’s econ- Capital markets business New York and Singapore, in omy diversifies, so too its has slowed and clients are which the offering entity is professional services sector driving a hard bargain on ‘Russian clients are an Isle of Man company. is expanding beyond law audit fees. very demanding Other work comes from and accountancy to advice But many accountancy wealthy families or compa- on areas such as pensions, firms have expanded in but if you provide nies in growth areas, plus yachts and aircraft manage- areas such as tax planning, some restructuring work on ment. value added tax and advi- the service they will companies in trouble. It feeds off the growth of sory services. stay with you’ Andrew Corlett, Cains’ financial services and other Mr McGarry says: “We managing director, says the sectors, but also acts as a try to support our clients as attraction of listing via an conduit to bring new busi- they grow, but also to bring Isle of Man company is “a ness to the island. new business to the island. banks and advisers, he system of law which is “The accountancy profes- I spend a lot of my time out says. readily understood by sion works with the legal promoting the Isle of Man Mr Johnson says Appleby advisers around the world, profession and the banking as a location for funds.” had “done extremely well acceptability for the listing profession,” says Eddie The biggest event in the with Russian clients. They authorities and tax trans- Teare, treasury minister. legal world in recent years are very demanding but if parency in terms of no “If an international has been the arrival of you can provide the service withholding tax on any cou- organisation is thinking of Appleby, the world’s largest they will stay with you”. pon”. doing business through the offshore law firm in terms Cains, another island law Simcocks, another law Isle of Man, we have the of staff, via a merger with firm that has been in busi- firm, has seen turnover fall expertise here to act as a Dickinson Cruickshank, an ness for more than 100 by 25 per cent since 2008 one-stop shop.” Isle of Man firm. years, achieved revenue and staff shrink from 60 to Like other sectors, it been Brian Johnson, director of growth of 3.5 per cent last 50 as work emanating from affected by the global eco- Appleby Aviation, a new year – below the 10-12 per London has slowed. nomic slowdown. subsidiary, was previously cent it was achieving before But Phil Games, chief But it is growing in expe- director of civil aviation for the crisis, but not bad in a executive, says it is fighting rience, sophistication and the island. difficult climate. back by expanding into the international outlook. He says the island, with Profit was up by 8 per British Virgin Islands. All the big four account- its UK value added tax reg- cent before exceptionals. Two of Simcocks’ staff ancy firms have sizeable istration allowing access to Virtually all the firm’s have qualified as BVI law- operations, along with oth- the EU, and bespoke com- business is international, yers and it will open an ers such as PKF, Moore pany law for owning air- much of it in eastern office there early next year. Stephens, Baker Tilly and craft, had become a world Europe and southeast Asia. The aim is to provide legal advice to BVI compa- nies managed by local cor- porate service providers – a model that could be repli- cated in other jurisdictions with an English common law base. Some count the regulated professions working for trust companies and corpo- rate service providers as part of the professional services sector. These are, in any case, developing into “solutions- type businesses”, says Mark Denton, managing director of SMP Partners and chair- man of the Association of Corporate Service Provid- ers. “The CSPs that will do better are ones that have accountancy and tax capa- bility, VAT capability and Cains law firm: virtually all of its business is international, much of it in eastern Europe provide a fuller service.”