E-commerce and the offshore marketplace are comfortable bedfellows. The geographical boundaries that historically have acted as physical barriers to trade are being demolished as the penetration of the internet opens up a raft of previously unimagined opportunities to centres around the world.
As a rule, offshore jurisdictions tend to be smaller than their onshore counterparts and so, in theory at least, can turn around legislative changes faster than larger, more bureaucratic countries. They are often specialists in specific sectors such as finance and, in many cases, self governing and hence not bound by the ?one size fits all' regulatory or fiscal straightjackets imposed on many of their onshore cousins. And offshore centres provide a natural extension for traditional cross-border traders. So, for offshore centres, e-commerce provides an ideal opportunity to diversify what can be quite narrow economies.
Of course, with this opportunity also comes a threat. The growth of the internet and, in turn, e-commerce has increased transparency for everyone thus sharpening the competitive environment in which businesses operate. In addition, companies are becoming less restricted by physical location and are able to move from place to place with relative ease. In these circumstances it is the centres that can provide businesses with tangible reasons to locate and stay ? in the form of dynamic legislation, plentiful supply of skilled labour, robust infrastructure and a sympathetic fiscal environment ? that will flourish.
The Isle of Man is ideally placed to be a global leader in e-commerce and this is the stated objective of the island's government. It offers the alluring combination of financial incentives and low-tax vehicles with onshore standard telecommunications and excellent bandwidth capacity and resilience.
Light touch legislation
For e-commerce to succeed anywhere it must be supported by effective legislation. This legislation must maintain a light touch ensuring that a balance is kept between providing effective regulation and fostering the growth of e-business applications. This is exactly what the Isle of Man's legislation sets out to achieve.
While e-commerce related legislative developments throughout the world are closely monitored in the Isle of Man, they are not followed slavishly. Legislators scrutinise and consult on such developments to benchmark legislation, and changes are only made to maintain a competitive advantage. To support this, lawmakers work closely with private sector practitioners to make sure that legislation does not act as a brake on the opportunities that e-commerce brings.
Similar light touch policies have been adopted successfully in Australia, the US and various parts of the Far East, and in each of these areas the benefits of this approach can be clearly seen. This is in direct contrast to the experience of many of the countries in the EU, where a more heavy handed and interventionist approach tend to be the defining characteristics of e-commerce legislation.
Early enactment of e-commerce legislation
The Isle of Man moved quickly to enact the Electronic Transactions Act 2000 to be one of the first offshore jurisdictions to have e-commerce legislation on the statute book. The e-commerce legislation effectively comprises the existing comprehensive suite of intellectual property/computer laws and a dedicated new Act.
The Act received Royal Assent in July 2000 and came into force (save for provisions affecting government and local authority departments) on November 1 2000. The Act is based on the universally respected UNCITRAL Model Law of 1996 (as enacted in Australia) and adopts a light, technology-neutral approach. Accordingly, it does not force citizens to use electronic transactions.
The primary purpose of the Act is to confirm that electronic transactions are valid under Isle of Man law and to eliminate many of the current legal distinctions between paper and electronic data ? putting them on the same legal footing. Accordingly, equivalence is imposed in relation to the use of paper and electronic data in respect of storage, production and notification requirements and as regards signatures. The Act, therefore, achieves more certainty in relation to the use of electronic transactions. It also makes provision for the simplified admissibility of electronic evidence.
Deliberately the Act does not deal with issues such as public key infrastructures, non-repudiation and legal presumptions, and the Isle of Man government anticipates introducing supplemental legislation as soon as a consensus emerges in relation to such matters. The Act constitutes an excellent foundation for the further development of the Island's e-commerce infrastructure.
The Electronic Transactions (General) Regulations 2000 were introduced to deal with certain details arising from the enactment of the legislation. In particular, the principal provisions of the Act are temporarily disapplied as regards public bodies in the Isle of Man to give those bodies time to introduce the necessary infrastructure and systems to deal with electronic transactions.
Of course, there is a recognition that the development of legislation in this field must be kept continuously under review, due to the rapidly changing nature of the industry, and further legislation will be introduced as the need arises.
Intellectual property and data protection
In addition to the Electronic Transactions Act 2000, the Isle of Man has a coherent set of legislation relating to intellectual property as well as data protection.
An Online Gambling Regulation Act has been passed, which permits gambling on the internet and similar forms of online and interactive gambling to be regulated. Already five licences have been awarded to some of the world's largest casino and gaming operators such as Sun Online and MGM Mirage, and there is a queue of companies looking to take advantage of the Island's online business incentives and strict regulatory regime. The emphasis is on regulation to attract only the best in the industry and over time will bring a large additional source of income to the Island. The Act will ensure that the Isle of Man is a world leader in the regulation of Internet gambling.
Patents and trademarks registered in the United Kingdom Patent Office, and trademarks registered in the EU Trademarks Office, are protected in the Isle of Man. Copyright in all kinds of works, including literary, artistic and musical works, computer programs and databases, is protected by the Copyright Act 1991. In addition, the use of databases is protected by the Copyright (Amendment) Act 1999.
The Data Protection Act 1986 protects individuals against the misuse of personal data in compliance with the 1981 European Convention on data protection. The Computer Security Act 1992 penalizes unauthorized access to, and misuse of, computer data. The Supply of Goods and Services Act 1996 sets out the rights of buyers and sellers of goods and services, including those supplied via the internet.
Operated in isolation, light touch legislation will not act as an effective driver for e-commerce. It requires support from a number of other building blocks ? the most important of which is creating a sympathetic fiscal environment attractive to e-business.
In June 2000, the treasury minister announced a radical future taxation strategy. The strategy has at its heart the simplification and modernization of the existing income tax code with a strong emphasis on maintaining a competitive and business-friendly tax environment that meets internationally agreed standards of regulation. It shows a determination to chart its own course according to the needs of the Island's economy, and to the protection and development of the long-term well-being of its population.
Approach to taxation and financial regulation
The Isle of Man government's approach in relation to all of the external initiatives on taxation and financial regulation has been a consistent willingness to engage in a constructive dialogue with the relevant groups and forums. The latter requirement is particularly important with regards to the OECD ? an organization making a concerted effort to eradicate what it regards as harmful tax practices. The Isle of Man was one of the jurisdictions to make an early commitment to the OECD on these issues ? an approach in stark contrast to that adopted by many of its peers. During its dialogue with international bodies, the Isle of Man government has continued to stress that the Island is a high-quality, well-regulated financial jurisdiction, committed to operating to established international standards and norms.
On the domestic front the proposals are that both the corporate and personal income tax rates will be cut to 10% at the lower rate and 15% at the higher rate within a period of three to five years. Substantial progress has already been made in achieving the desired objectives. A 2% cut in the rates was announced in March 2001 and in the recent March 2002 budget a further significant step was taken.
With effect from April 6 2002, e-commerce companies and others resident and trading from the Island will enjoy a lower tax rate of 10% on the first £500,000 of income and a top rate of 15% on the balance. Relief for capital expenditure on plant and machinery will continue to attract 100% write-off against income tax. With financial grants of up to 40% on such capital expenditure and on marketing and professional fees, it places the Island amongst the countries with the most competitive taxation regimes in the European arena.
At present, if ownership of the company rests outside the Isle of Man and no trade is conducted with Island residents, the company may qualify for exemption from Isle of Man tax. This regime is under consideration by the Island's Treasury being one of the allegedly harmful tax measures. The Treasury has stated that it fully recognizes the importance to the Island's financial activities that the tax neutrality achieved by such entities is retained. Discussions have taken place with the business community on the way forward and a recent Chamber of Commerce suggestion was that the rate for corporate activities should be reduced to zero. Whether this can be achieved is a matter of wait and see.
For business-to-business e-commerce activity, the Isle of Man is without doubt a very attractive jurisdiction for locating an organization's inter-EU trade. Combined with the low or exempt direct tax possibilities, the availability of a VAT registration can make the establishment of an e-commerce entity on the Isle of Man physically very beneficial from both a reduced administration as well as a reduced cost basis.
