Following the ‘grey-listing’ of the territory by the European Union (EU), due to a lack of tax transparency in the territory, remedial legislation will be enforced by January, following the approval of a bill in this regard by Cabinet.
The implementation of this legislation will occur, despite the fact that it will result in challenges arising for companies.
Premier and Minister of Finance, the Honourable Dr. D. Orlando Smith yesterday, December 4, announced that on the scheduled December 13 sitting of the House of Assembly (HoA), the bill which deals with economic substance will be introduced and considered, so that it can be enforced by the December 31 deadline that was mandated by the EU.
The introduction of this legislation will be in keeping with Government’s pledge to implement it by the end of this year, so as to allay concerns of the EU as it relates to tax transparency, fair taxation, base erosion and profit shifting (BEPS) in the territory.
Countries that are lacking in legislation or found to be culpable of such adverse activities are blacklisted, while some are placed on the “greylist,” which the Territory is now on.
The BVI was placed on the greylist after commitment was made by the Government to address these issues—specifically concerns related to “economic substance.”
The EU requires that the BVI display “economic substance,” where there is real economic activity to account for profit generation, and Premier Smith had vowed to meet the 2018 deadline for the BVI’s deficiency in this area to be rectified.
Over a month ago, Cabinet had approved the contracting of Legal Counsel, Mr. Michael Furness, QC, to draft the legislation for the territory at a cost of $300,000.
According to a press release, “The new legislation will introduce economic substance requirements for all companies and limited partnerships which are registered and tax resident in the BVI.”
This legislation will mandate that “every Corporate Service Provider registering a company that falls under the scope of the legislation will have to know where the company or limited partnership is tax resident and must be ready to relay that information to the BVI’s competent authorities.”
The legislation will also require that in the case that a company or limited partnership is tax resident in the BVI, it must demonstrate economic substance.
According to the missive, “Companies and limited partnerships that are tax resident in the BVI will have the opportunity to upskill those who work in the financial services sector through providing value-added services and increased sophistication of the sector.”
Additionally, it was noted that, “Companies and limited partnerships which are tax resident in BVI must, in relation to any relevant activity, carry out core income generating activities in BVI.”
These include banking business, insurance business, fund management business, finance and leasing business, headquarters business, shipping business, holding business, intellectual property business, and distribution and service centre business.
Speaking to this latest development, Premier Smith said, “The international business and financial services sector makes a vital contribution to the economy of the British Virgin Islands and facilitates cross-border investment and trade to the benefit of the global economy.”
However, he pointed out that this new legislation will present some difficulties for companies operating in the BVI.
”The Government recognises that the legislation will create challenges for some companies and limited partnerships. The BVI is not alone in facing these challenges. But, in every challenge there is an opportunity and the Government will engage closely with the BVI’s international business and financial services sector to ensure that the jurisdiction continues to provide services that benefit the global economy.”
However, he maintains that ‘conditions’ will be put in place to ensure the growth of the economy, saying, “the BVI is resilient. And the BVI is united in ensuring that we continue to put in place the conditions to allow existing sectors, and new sectors, of our economy to prosper and grow.”