Common Purse agreement
Encyclopedia
The Common Purse Agreement entitles the Isle of Man
to a share in the United Kingdom
's Customs and Excise
revenues in return for being in customs union
with the UK and not charging any import duties on goods from the UK, or that have been imported through the UK. As the UK is a member of the European Union
, the Isle of Man is effectively in customs union with the entire EU.
The agreement is so called because it effectively sets up a 'common purse' for the receipt of excise duties and revenue, which is then split between both treasuries according to agreed formulas.
In summary, the combined Customs revenue was first divided proportional to population. In addition to this, the Island's government received a sum per visitor. It appears that this additional allowance was significant:
In addition, this means that VAT
must be charged on Mann at the same rate as in the UK, and all VAT receipts are paid to the UK Treasury (but then repaid to the Manx Treasury through this agreement), but the agreement is generally accepted as being advantageous to the Isle of Man.
There have been differences in indirect taxation agreed, for example in 2003 UK betting and gaming duty was set at 15%, whilst the Isle of Man brought in a lower rate of 10%.
According to the Isle of Man Treasury, 'Neither the amount actually received, nor the exact method of calculation of the Island's share of the common duties and taxes, is in the public domain'. It is therefore not known how much is received by the Isle of Man from the United Kingdom. Despite this, in a Tynwald
debate in December 2005, the Minister for Tourism and Leisure revealed that every visitor to Mann from the UK, even if only on a day visit, was worth £50 to the Isle of Man Treasury in additional Common Purse allowance.
Revenue is shared on the basis of actual consumption, and therefore actual revenue yield in each jurisdiction.
Taxes apportioned in this way:
Revenue is shared proportional to the number of residents in each jurisdiction.
Population estimates used for 2005 financial year:
Taxes apportioned in this way:
The fiscal population is calculated to adjust the real population to take account of visitors to the Isle of Man. No account is made of visitors to the United Kingdom. Each visitors adds approximately 0.18 of a head to the population count.
In the 2005 financial year there were 323,018 visitors to the Island, resulting in an adjustment of 58,903 to the population figure.
Fiscal population estimates used for 2005 financial year:
Taxes apportioned in this way:
within the Island.
This payment was first introduced by the Isle of Man Customs, Harbours, and Public Purposes Act 1866 (An Act of Parliament
). This payment replaced a previous arrangement whereby the UK Treasury had retained all surplus Manx revenue – from 1866 onwards this surplus would be paid into the new Manx Accumulated Fund. No specific purpose or justification was stated for the payment.
The MacDonnell Inquiry in 1911 reported that it had received a request from Tynwald for a reduction in the contribution, which was still at that time fixed at £10,000 per annum. In refusing to reduce the figure, the Inquiry noted that the Island enjoyed 'national protection' and 'manifold national advantages'.
The annual contribution set in the Customs, Harbours and Public Purposes Act 1866 was supplemented by a new formula in the Isle of Man Contribution Act 1956 (An Act of Tynwald
). This Act explicitly specified that the payment was for 'defence and other common services', and in the associated Annual Contribution Agreement the amount was set at 5% of the Island's Common Purse receipts, at the time around £100,000.
The Isle of Man Act 1958
(An Act of Parliament) repealed the 1866 Act of Parliament, thereby ending the legal obligation to pay £10,000 that had remained in force until that time.
In 1973, the Kilbrandon Commission on the Constitution
stated that the contribution should be considered a voluntary payment.
In 1978, Tynwald halved the percentage of the Common Purse receipts that were remitted to the UK Treasury from 5% to 2.5%. This changed was imposed unilaterally by the Isle of Man without consultation with the United Kingdom, who continued to press for a 5% payment.
The Contribution Act 1956 required annual extension by Tynwald, and this was withheld in 1992.
A new agreement was reached in 1994 whereby a payment of £1,750,000 would be made, to be increased in line with changes in GDP (for comparison, the 1992 payment had been £2,295,247). It was stated that the sum "does not and will not reflect either the range of, nor the net true cost of the respective services mutually provided by the two Governments" and that "the United Kingdom Government accepts such annual amount as a token of appreciation and support by the Isle of Man Government to the United Kingdom Government."
want the Manx Government to control indirect taxation, including VAT. They recognise that this would involve the cessation of the Common Purse agreement.
Isle of Man
The Isle of Man , otherwise known simply as Mann , is a self-governing British Crown Dependency, located in the Irish Sea between the islands of Great Britain and Ireland, within the British Isles. The head of state is Queen Elizabeth II, who holds the title of Lord of Mann. The Lord of Mann is...
to a share in the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
's Customs and Excise
Customs and Excise
Customs and Excise refers to customs duty and excise duty.In certain countries, the national tax authorities that are responsible for collecting those duties are named Customs and Excise, including:...
revenues in return for being in customs union
Customs union
A customs union is a type of trade bloc which is composed of a free trade area with a common external tariff. The participant countries set up common external trade policy, but in some cases they use different import quotas...
with the UK and not charging any import duties on goods from the UK, or that have been imported through the UK. As the UK is a member of the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
, the Isle of Man is effectively in customs union with the entire EU.
The agreement is so called because it effectively sets up a 'common purse' for the receipt of excise duties and revenue, which is then split between both treasuries according to agreed formulas.
Common Duties Agreement
There were various agreements dating back to the 17th century. In 1911 the Isle of Man Constitution Committee (the MacDonnell Inquiry) described the Common Purse agreement in these terms:In summary, the combined Customs revenue was first divided proportional to population. In addition to this, the Island's government received a sum per visitor. It appears that this additional allowance was significant:
Customs and Excise Agreement 1979
The latest formalisation of this arrangement was signed on 15 October 1979 as the Customs and Excise Agreement 1979, and introduced by the Isle of Man Act 1979 (An Act of Parliament). It is basically a revenue-sharing system, and is the latest agreement builds on the Customs Etc Agreement 1957, which stated that Tynwald could not introduce any differences to UK indirect taxation (except on beer) without the permission of the UK Treasury (in preparation for the UK Parliament empowering Tynwald with control over Manx indirect taxation in the Customs (Isle of Man) Act 1958).In addition, this means that VAT
Vat
Vat or VAT may refer to:* A type of container such as a barrel, storage tank, or tub, often constructed of welded sheet stainless steel, and used for holding, storing, and processing liquids such as milk, wine, and beer...
must be charged on Mann at the same rate as in the UK, and all VAT receipts are paid to the UK Treasury (but then repaid to the Manx Treasury through this agreement), but the agreement is generally accepted as being advantageous to the Isle of Man.
There have been differences in indirect taxation agreed, for example in 2003 UK betting and gaming duty was set at 15%, whilst the Isle of Man brought in a lower rate of 10%.
According to the Isle of Man Treasury, 'Neither the amount actually received, nor the exact method of calculation of the Island's share of the common duties and taxes, is in the public domain'. It is therefore not known how much is received by the Isle of Man from the United Kingdom. Despite this, in a Tynwald
Tynwald
The Tynwald , or more formally, the High Court of Tynwald is the legislature of the Isle of Man. It is claimed to be the oldest continuous parliamentary body in the world, consisting of the directly elected House of Keys and the indirectly chosen Legislative Council.The Houses sit jointly, for...
debate in December 2005, the Minister for Tourism and Leisure revealed that every visitor to Mann from the UK, even if only on a day visit, was worth £50 to the Isle of Man Treasury in additional Common Purse allowance.
Until 2007
- The common duties collected by the two jurisdictions are pooled.
- Revenue attributed to specialist business and government sectors is excluded from the pool, and retained by the originating jurisdiction.
- Taxes not pooled include those relating to:
- accommodation
- sports and recreation
- film-making
- financial services
- gambling and betting
- Taxes are then distributed in one of three ways:
- Actual consumption basis
- Residential population basis
- Fiscal population basis
Actual consumption basis
Revenue is shared on the basis of actual consumption, and therefore actual revenue yield in each jurisdiction.
Taxes apportioned in this way:
- Hydrocarbon oil dutyHydrocarbon oil dutyHydrocarbon oil duty is fuel tax levied on some fuels used by road vehicles in the United Kingdom. Between 1993 and 1999 the Government's Fuel Price Escalator led to significant rises in the cost of fuel which led to fuel tax protests in 2000, 2005 and 2007. In May 2008, UK fuel tax rates were one...
- Lottery duty
Residential population basis
Revenue is shared proportional to the number of residents in each jurisdiction.
Population estimates used for 2005 financial year:
- United Kingdom: 60,303,151
- Isle of Man: 78,391
Taxes apportioned in this way:
- Value added taxValue added taxA value added tax or value-added tax is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the "value added" to a product, material or service, from an accounting point of view, by this stage of its...
- Pool betting duty
- Agricultural duties
Fiscal population basis
The fiscal population is calculated to adjust the real population to take account of visitors to the Isle of Man. No account is made of visitors to the United Kingdom. Each visitors adds approximately 0.18 of a head to the population count.
In the 2005 financial year there were 323,018 visitors to the Island, resulting in an adjustment of 58,903 to the population figure.
Fiscal population estimates used for 2005 financial year:
- United Kingdom: 60,303,151
- Isle of Man: 137,295
Taxes apportioned in this way:
- Tobacco duties
- Alcohol duties
- Customs duties
- Anti-dumping dutiesDumping (pricing policy)In economics, "dumping" is any kind of predatory pricing, especially in the context of international trade. It occurs when manufacturers export a product to another country at a price either below the price charged in its home market, or in quantities that cannot be explained through normal market...
Services contribution to UK Treasury
As with the other Crown dependencies, the Isle of Man makes a payment to the United Kingdom Treasury in respect of the services provided to the island: the constitutional responsibilities are defence, foreign representation (including consular assistance), and ensuring good governanceGood governance
Good governance is an indeterminate term used in development literature to describe how public institutions conduct public affairs and manage public resources in order to guarantee the realization of human rights. Governance describes "the process of decision-making and the process by which...
within the Island.
This payment was first introduced by the Isle of Man Customs, Harbours, and Public Purposes Act 1866 (An Act of Parliament
Act of Parliament
An Act of Parliament is a statute enacted as primary legislation by a national or sub-national parliament. In the Republic of Ireland the term Act of the Oireachtas is used, and in the United States the term Act of Congress is used.In Commonwealth countries, the term is used both in a narrow...
). This payment replaced a previous arrangement whereby the UK Treasury had retained all surplus Manx revenue – from 1866 onwards this surplus would be paid into the new Manx Accumulated Fund. No specific purpose or justification was stated for the payment.
The MacDonnell Inquiry in 1911 reported that it had received a request from Tynwald for a reduction in the contribution, which was still at that time fixed at £10,000 per annum. In refusing to reduce the figure, the Inquiry noted that the Island enjoyed 'national protection' and 'manifold national advantages'.
The annual contribution set in the Customs, Harbours and Public Purposes Act 1866 was supplemented by a new formula in the Isle of Man Contribution Act 1956 (An Act of Tynwald
Act of Tynwald
An Act of Tynwald is a statute passed by Tynwald, the parliament of the Isle of Man.-Structure:Acts of Tynwald are structured in a similar format to Acts of the Parliament of the United Kingdom.-Commencement:...
). This Act explicitly specified that the payment was for 'defence and other common services', and in the associated Annual Contribution Agreement the amount was set at 5% of the Island's Common Purse receipts, at the time around £100,000.
The Isle of Man Act 1958
Isle of Man Act 1958
The Isle of Man Act 1958 restated the Common Purse Agreement between the United Kingdom and the Isle of Man.It also ended control by the UK Treasury over Manx finances, and granted Tynwald powers to legislate with regard to customs, harbours, loans, mines, the police and the civil service.The...
(An Act of Parliament) repealed the 1866 Act of Parliament, thereby ending the legal obligation to pay £10,000 that had remained in force until that time.
In 1973, the Kilbrandon Commission on the Constitution
Royal Commission on the Constitution (United Kingdom)
The Royal Commission on the Constitution, also referred to as the Kilbrandon Commission or Kilbrandon Report, was a long-running royal commission set up by Harold Wilson's Labour government to examine the structures of the constitution of the United Kingdom and the British Islands and the...
stated that the contribution should be considered a voluntary payment.
In 1978, Tynwald halved the percentage of the Common Purse receipts that were remitted to the UK Treasury from 5% to 2.5%. This changed was imposed unilaterally by the Isle of Man without consultation with the United Kingdom, who continued to press for a 5% payment.
The Contribution Act 1956 required annual extension by Tynwald, and this was withheld in 1992.
A new agreement was reached in 1994 whereby a payment of £1,750,000 would be made, to be increased in line with changes in GDP (for comparison, the 1992 payment had been £2,295,247). It was stated that the sum "does not and will not reflect either the range of, nor the net true cost of the respective services mutually provided by the two Governments" and that "the United Kingdom Government accepts such annual amount as a token of appreciation and support by the Isle of Man Government to the United Kingdom Government."
Common Services Agreement
Today, the Isle of Man has a Common Services Agreement with the United Kingdom, whereby payment is made for defence, foreign representation, and other work done by the departments of the UK Government on behalf of Mann and its people – excluding NHS health care on the mainland for Manxmen, which is currently charged to the Manx Government on an 'as-used' basis. In 2002 the payment made was £2.4 million, and is a set proportion of Common Purse receipts. However, if defence alone was proportioned according the relative populations, the Manx contribution would be in excess of £29 million, some ten times larger.Nationalist viewpoint
The Manx Nationalist party, Mec VanninMec Vannin
is a political party operating in the Isle of Man. Formed in 1962, it seeks to revoke the status of Man as a British self-governing Crown dependency and establish a completely sovereign state, which would be a republic....
want the Manx Government to control indirect taxation, including VAT. They recognise that this would involve the cessation of the Common Purse agreement.
External links
- Customs and Excise Agreement 1979, as amended by the Customs and Excise (Amendment) Agreement 1994
- Memorandum from the Isle of Man Government to the Treasury Select Committee of the House of Commons, 2008
- Further Revision of the July 2007 Modernisation of the Arrangements for the Sharing of Common Duties Between the UK and the Isle of Man