British Virgin Islands - Jurisdictoin Update

August 2002

Developments in the BVI

This year has already seen some major developments in the financial services industry in the British Virgin Islands (BVI). The most noteworthy developments are the BVI’s commitment to the OECD harmful tax initiatives (“BVI commitment”) and the signing of a tax information exchange treaty with the United States. It is believed that both developments will have a positive and productive affect on the way the BVI financial service jurisdiction operates.

Harmful Tax Initiatives

The Chief Minister of the BVI announced on 2 April that the BVI has committed to the OECD’s harmful tax initiatives. This follows a long 18 months of negotiation by representatives of the BVI with the OECD and the draft commitment letter filed by the BVI in early March 2002. Although the BVI has committed to the OECD, the BVI has made it very clear that it will only progress its undertaking if there is a level playing field with OECD countries and other jurisdictions in its place.

The major points of the BVI commitment are as follows:

• The BVI commits to the principles of transparency and effective exchange of information in tax matters.

• With respect to establishing a process for the effective exchange of information, the BVI will put in place legislation in relation to criminal tax matters by 1 January 2004 and for civil tax matters by 1 January 2006. Any decision to exchange information will take into account issues of public policy, the need to protect trade, business, industrial, commercial and professional secrets as well as the respect for attorney-client privilege. The process will entail negotiation and the adoption of bi-lateral tax information exchange agreements. If the matter being investigated involved criminal matters, information will be provided regardless of whether the matter constitutes a crime in the BVI.

• In relation to transparency, the BVI has undertaken to ensure information on the beneficial ownership of legal entities is available to its tax and regulatory authorities. At this stage, it is not clear what the precise requirements will be but we believe that it is likely that the requirements already in place in the BVI as a result of the Anti-Money Laundering Code of Practice will mean that this obligation will be met.

• The BVI has undertaken to require the keeping of accounts by companies, partnerships, trusts and other legal entities established in the BVI or having a place of business in the BVI. Filing and/or auditing requirements may well be introduced at a later time for certain classes of entities. However, it is important to note that the adoption of these requirements is still under discussion with the OECD. We also emphasise that the BVI has been invited to be involved in the OECD’s special ad-hoc group on financial accounts to address issues raised concerning reporting requirements. This is excellent news as it will ensure the BVI is involved in any decision making on this important matter.

• BVI tax and regulatory authorities will have access to bank information that is relevant to tax matters.

The BVI commitment to the OECD comes with the following provisos:

• The BVI will not be included on any list of uncooperative jurisdictions.

• The BVI will be invited by the OECD to participate in the Global Forum on the design of internationally accepted accounting standards for the principles of transparency and the effective exchange of information.

• The BVI reserves the right to decline a request for information if such a request would be contrary to public policy or it is information which a country making the request cannot obtain under its own laws for the purposes of the enforcement of its own tax laws.

It is clear there are a number of practical issues that require further consideration in respect to the BVI commitment. As stated above, the BVI commitment will only be progressed so long as all OECD member countries also give their commitment. Therefore, the BVI will be waiting for Switzerland, Luxembourg, Portugal and Belgium to make similar commitments.

BVI – US Tax Information Exchange Treaty

Also on 3 April, the BVI signed a tax information exchange treaty with the United States. This follows similar treaties the United States has signed with other Caribbean jurisdictions such as the Cayman Islands and Bermuda. This treaty entered into by the BVI follows the principles of effective exchange of information outlined in the BVI commitment.

The agreement will come into effect for criminal tax evasion on 1 January 2004, and with respect of all other matters on 1 January 2006.

Conclusion 

The BVI commitment is considered to be an agreement that will serve the BVI financial services industry well. As the Chief Minister stated “The BVI Government remains resolved to do whatever is necessary to ensure the international competitiveness and economic viability of these islands”. The BVI has managed to gain some significant concessions in relation to the commitment it signed and for that the Government of the BVI should be commended. It has placed the BVI in a strong position to continue its role as a first tier player in the international financial services industry..

We will keep you informed as more details come to light.. If you have any further questions regarding the recent BVI developments please feel free to contact us.