Your reading in the INTM is exactly what I was talking about. ITH331 & 334 are what I was referring to when I said you had to be very careful! The question is one of whether the actual operating decisions are being made in IoM, or if they are just documenting the actions that are being taken care of in the UK? Take a look at ITH343. This is what the UK would like to move to - residence is where the business is really taking place. However, they instead went to the Country of Incorporation rule, with the management/control as the tiebreaker. They also have the concept of "TNR" or "Treaty NonResident". Your IoM company would not be incorporated in the UK, and would not be a TNR, so they would look strictly at control. The question then goes back to my original statement - you would need to be very careful to make sure that the "control" would be from IoM.
In order to have that much control, I am afraid that the owner/director would have to spend so much time in IoM that he would be considered a resident of the IoM. This may not be all bad, as the residents pay lower tax, and this would actually strengthen your argument that it is truly an IoM company, as one of the things that HMRC looks at is the country of residence of the directors. Their UK grocery store example in ITH334, wherein the grandfather moves to Jersey and they have the meetings in Jersey lends to the credibility of the scheme, although with the grandfather moving to Jersey, as with your owner/director becoming resident on IoM, there are other tax consequences, as I have pointed out.
If you were to modify your scheme to the intangible license, in effect paying a "royalty" to Company B, I think that the activity would be better suited to achieve the benefits you want. As you point out, if you structure the license agreement correctly, there will be little management and control functions to carry out for Company B beyond the initial setup and occasional reviews. This would also reduce the owner/director's days in IoM, so that he averaged less than 90 days each year. The IoM does not have any transfer pricing regulations; however the UK does. So you would have to structure the license to be an "arm's length" price, which would still be able to reduce the overall tax burden by quite some amount. The IoM also does not tax royalties, unless they are paid to IoM individuals, which yours are not.
As far as the DOTAS rules, I read your situation to be that the Company actually formulated the scheme. HMRC gives more leeway to a company that comes up with their own schemes, hence the exception for small and medium size companies. If a promoter of the scheme is used, they view him as an expert who is paid to develop ways to avoid taxation
, and do not grant the same leeway. The promoter in all cases has more reporting responsibility, with shorter time periods (initial reporting is 5 days vs 30 for a company). The promoter also has to provide quarterly details of the scheme to HMRC.
If you as the company have hired someone to arrange this scheme, they are considered the promoter and they have the obligation to report, unless they are non-UK based or if they are a lawyer and privilege applies. In that case the Company must report. So if this scheme was developed by a promoter, then yes, they should report. Failure to report can lead to large penalties.
The current DOTAS rules can be found at http://www.hmrc.gov.uk/aiu/guidance-oct-2012.pdf if you would like to look at them. I referenced Pg 26 for the company developed rules. Section 19 deals with the penalties if you are interested.
As far as the advice being relocation rather than avoidance, I believe that HMRC would argue that DOTAS requires the reporting of any arrangement that including any scheme, transaction
or series of transactions that will or are intended to provide the user with a tax and/or National Insurance contribution advantage when compared to adopting a different course of action. While on its surface, that seems to mean that any tax planning
could be subject to DOTAS, I believe that a large or complex step or series of steps that have tax minimization as their MAIN objective would be required to be reported to DOTAS. In your case, the main purpose of either of these arrangements would be to minimize tax. The licensing could easily be done through a UK entity if it was required for business reasons. The fact that you are using a tax haven indicates tax savings
, ergo DOTAS reporting.
I hope this answers your questions! If you have any more, please feel free to ask! I am always happy to answer!
Again, thanks! Have a great week!