The OECD and Harmful Tax Practices

July 2000

Over the last few years there has been considerable focus and discussion on offshore jurisdictions with respect to the issue of increased transparency so as to assist in the elimination of money laundering and harmful tax practices. There have recently been announcements by a number of jurisdictions including the Cayman Islands, Bermuda, Cyprus, Malta, Mauritius and San Marino that they have joined OECD member countries in committing to eliminate harmful tax practices.

The British Virgin Islands Government, in consultation with the BVI Financial Services Sector, have, for some time been considering how it can assist in providing greater transparency in financial matters where there is a legitimate reason to do so, whilst continuing to protect client confidentiality. It is generally accepted in the offshore industry that while the OECD position on "harmful" tax practices is very subjective, legislative change will be required to meet the OECD criteria and therefore avoid its threatened sanctions.

In line with this, the Honourable Chief Minister, Ralph T. O’ Neal announced on 6 June 2000 that the BVI Government was prepared to undertake to provide the OECD with the level of cooperation it seeks, whilst protecting the legitimate interests of clients. These measure include amending legislation to:

(a) Required particulars of directors to be recorded at the Companies Registry.

(b) Restrict the mobility attaching to bearer shares by requiring them to be deposited with licensed financial institutions.

It is anticipated that such amendments will be completed in consultation with the Financial Services Industry and will result in the OECD viewing the BVI as a co-operative jurisdiction when the OECD makes its final determination as to co-operative jurisdictions in June 2001 - thus avoid the threatened OECD sanctions.

We will keep you appraised as to the content and time tabling of any proposed amendments to the BVI legislation so that clients can then objectively consider their respective positions.

For further information please contact us.