Photo Credit: BVI Platinum News
Despite the BVI being recognised by the European Union (EU) as compliant with its Economic Substance principles, as well as being a cooperative jurisdiction, and not being placed on the blacklist, the Territory remains on “Annex II” of the list of jurisdictions, commonly known as the “grey list.”
This was clarified by Executive Director of the Office of International Business, Mr. Neil Smith, who said that the retention of the Territory on the grey list is no fault of the BVI, as the Territory has met the legislative requirements in the form of the Economic Substance (Companies and Limited Partnerships) Act, 2018.
Instead, he highlighted that the reason for the retention lies at the feet of the EU.
“Essentially, even though we’re still on the grey-list, it’s not cause for alarm necessarily. What has happened is the EU itself has some challenges trying to figure out some of the things that we do,” he stated during a press briefing yesterday, March 13.
According to Mr. Smith, the EU is being cautious.
“Because there’s still some uncertainty surrounding those things, they decide to just err on the side of caution and keep us on the grey list. It’s not that we have any issues per se.”
The concerns of the EU, he divulged, arise from a failure to arrive at a consensus as to how the Union would address “funds industries” such as the BVI, which essentially regulate the managers of investment funds.
“The EU itself had some…did not come to a firm position on funds, or as we refer to it…collective investment vehicles…They themselves are having some arguments among themselves on how they should deal with funds,” the Director shared.
He went on to explain that, “…Because the BVI has a growing…fund Industry…not being able to articulate how they want to treat funds in terms of economic substance, they’ve just kept us on the grey list for their purposes; it’s not no fault of ours. Whatever they’ve given us, we have addressed. But because they themselves are having some issues with it, they just kept us there.”
Mr. Smith further stressed that the BVI has produced legislation to the satisfaction of the EU.
“Now it’s just for us to comply with that. We are actually now in the process of producing guidance,” he added.
The ‘guidance,’ he explained, will steer businesses within the Financial Services Industry in the right direction as to the expectations of the legislation that was passed last year.
“We see that that (the legislation) is accepted, so what we’re doing now is writing the guidance notes and those will be completed in the next month or two,” Mr. Smith shared.
Why The Push For Economic Substance?
The Director took the opportunity to explain the motive behind the EU’s push for economic substance regulations, noting that “The BVI is a global village. We are not here by ourselves. And there are people outside who in my view don’t understand what we are doing here.”
According to Mr. Smith, there are persons who may open a business account in a country with more favourable tax rates, to escape paying high taxes in their country.
“There are also people who try to use the BVI and jurisdictions like the BVI to do things that are not nice. So, what is happening, in the UK, in the European Union…there’s a constant push to try to like flush out these unethical people,” he related, pointing out that taxation is what most countries, especially European countries, use to pay for their social services.
“Whenever the Governments get in a squeeze or financial crisis, they start to look outside to see where they are not getting as much money as they are supposed to. And some of the citizens of these same countries are using what we call international tax arbitrage to come up with a lower tax rate,” he expounded.
However, he noted, “We don’t disagree that people need to be honest and follow the law.”