Evidence submitted by British Virgin Islands Government (tav0038)

Treasury Sub Committee: Tax Avoidance and Evasion Inquiry

Evidence submitted by the Government of the British Virgin Islands

The evidence below addresses the Sub-Committee’s question:

What part do the UK’s Crown Dependencies and Overseas Territories play in the avoidance or evasion of tax? What more needs to be done to address their use in tax avoidance or tax evasion?

Executive Summary

• The British Virgin Islands (BVI) plays a significant role in the combatting of tax evasion and avoidance through its extensive and sophisticated international co-operation network.  Through a series of bi-lateral and multilateral treaties, it exchanges tax information both automatically and by request.
• The BVI is tax neutral.  It is not a tax haven. The BVI does not charge local taxes on transactions conducted or assets held in the BVI as they relate to economic activity elsewhere. This does not reduce or eliminate tax liabilities outside the BVI.  Tax neutrality should be distinguished from low tax regimes such as Luxembourg where low rates or tax relief may be offered on specific categories of income. 
• The BVI has established the International Tax Authority (ITA) solely for the purpose of providing information to partners through its Tax Information Exchange Agreements.
• The BVI is an active member of the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes.  Along with the UK it is listed as ‘largely compliant’.  It is a member of both the Peer Review group, which assesses other members and relevant non-members of the Global Forum in respect to their information exchange requirements and the Steering Committee which guides policy.
• The BVI was an early adopter of the Common Reporting Standard, exchanging information in advance of many G20 countries.  It also currently exchanges information under the U.S. Foreign Accounts Tax Compliance Act (FACTA) with US authorities.
• The BVI is a member of the Inclusive Framework of BEPS (Base Erosion of Profit Shifting).  As part of this Initiative the OECD led Global Forum on Transparency and Exchange of Information for Tax Purposes has concluded that no harmful tax regimes exist in the BVI.
• The BVI meets all Financial Action Task Force (FATF) requirements in relation to the holding of verified company beneficial ownership information which is directly accessible to the BVI competent authorities and then to relevant UK authorities within 24 hours of a request being made, one hour if urgent.
• BVI is a respected and active participant in international bodies including the FATF and Financial Stability Board regional bodies, the global standard setter for the securities sector (IOSCO), and the Egmont Group of Financial Intelligence Units.

1.       International Tax Authority

• On matters of tax the BVI’s International Tax Authority (ITA) has a full-time staff solely dedicated to providing information to its partners through its Tax Information Agreement Network on individuals and organisations that might be avoiding taxes in their respective countries. The BVI is recognized as being a cooperative and willing partner as an active member of the Global Form on Transparency and the Exchange of information for Tax Purposes. As part of the Forum, the BVI is mandated to comply with the standards set by Global Forum, and currently has the rating of Largely Compliant in respect to meeting its obligations in respect of the information exchange standards set. As a member of both the Peer Review group which assesses other members and relevant non-members of the Global Forum in respect to their information exchange requirements and the Steering Committee which guides policy the BVI is doing its part to ensure that tax evasion is eliminated.

2.       Tax Neutrality

• The BVI is tax neutral.  It is not a tax haven. BVI does not charge local taxes on transactions conducted or assets held in the BVI as they relate to economic activity elsewhere. This does not reduce or eliminate tax liabilities outside the BVI.  Tax neutrality should be distinguished from low tax regimes such as Luxembourg where low rates or tax relief may be offered on specific categories of income. 

• The Capital Economics Report of June 2017 which looked closely at the BVI as a business and finance centre was sceptical about the figures used by some relating to international finance centres. In the report, Capital Economics stated that the analyses of these groups do not bear scrutiny, commonly failing to distinguish between legitimate trade between countries and illicit capital flows. Given the level of global trade that passes through centres such as the BVI, most of it public and essential to the successful functioning of the global economy, it is simply not the case that much of is in some way illegitimate.

3.       Automatic Exchange of Information

• The BVI Government has an obligation to exchange information on an automatic basis with a number of jurisdictions for tax purposes.  These obligations are created under the following Agreements or Arrangement:

a)      the BVI/United Kingdom Inter-Governmental Agreement to improve International Tax Compliance (UK CDOT)

b)      the BVI/United States Inter-Governmental Agreement to improve Tax Compliance and to implement Foreign Accounts Tax Compliance Act (US FATCA)

c)       the Common Reporting Standards (CRS)

• Automatic Exchange of Information (AEOI) is the transmission of financial account information automatically without a request for information being issued.  In order to exchange this information automatically under these Agreements, the BVI Government has enacted domestic legislation to require BVI financial institutions to collect and maintain the necessary customer due diligence and financial account information and as such to report all relevant reportable accounts to the BVI Government on an annual basis.  The Government in turn has an obligation to exchange this information with its partners in accordance with the various Agreements or Arrangement.
• These Agreements and Arrangement entered into by the Government of the Virgin Islands generally set out the following:

a)      the type of financial account information to be exchanged,

b)      the financial institutions that need to report,

c)       the different types of accounts and taxpayers covered,

d)      Customer due diligence procedures to be followed by financial institutions when determining if an account is a reportable account.

3.1   Automatic Exchange of Information Agreement with the UK

• In November, 2013, the UK and BVI Governments signed an Agreement to facilitate the reporting by BVI Financial Institutions about financial accounts held by UK taxpayers or foreign entities in which those taxpayers hold a substantial ownership interest.  The UK CDOT Agreement prescribes obligations that financial institutions must comply with such as the reporting obligations, the deadline for enrolment, the deadline for annual reporting and information as it relates to Inspection and Compliance of Financial Institutions.

• Following the creation of the Common Reporting Standard, it was agreed that the UK CDOT should be replaced by arrangements under the CRS.  The transition began 2017.
• While both the UK and BVI Governments agreed that there would be an overlap in the period covered by UK CDOT and the CRS, there was no need for duplicate reporting.  Thus, where due diligence was done under the Inter-Governmental Agreement (IGA), it was deemed to have been done for the purposes of the CRS. 
• As a result, exchanges in respect of 2016 reportable accounts were reported in accordance with the maximum of what is required by the CRS or the IGA in that year.
• Exchanges are now reported in accordance with the CRS only. 

3.2   Automatic Exchange of Information under the Common Reporting Standard (CRS)

• In 2015, the BVI passed the Mutual Legal Assistance (Tax Matters) (Amendment) (No. 2) Act, 2015 (“CRS law”). There are many similarities between the UK CDOT regime and the CRS; as mentioned above, the BVI/UK CDOT regime was replaced by CRS.
• There are currently over 100 jurisdictions that are committed to the implementation of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters and over 80 jurisdictions have signed the multilateral Competent Authority Agreement, including the British Virgin Islands   The Convention provides the legal basis for automatic exchange of information for tax purposes in accordance with the CRS.
• The British Virgin Islands was an early adopter of the CRS, and as a result the BVI agreed to exchange financial account information with the first group of participating jurisdictions under the CRS by September, 2017. Where the partners have all the arrangements necessary to receive this information, the information has been transferred. As a member of the Global Forum the BVI is compelled to operate as per the standards determined by this body and has been doing so.    
• The first report to the International Tax Authority of Reportable Accounts was required by 31 May 2017 and thereafter by 31st May annually.

3.3   Automatic Exchange of Information Agreement with the US

• The objective of this Agreement is to facilitate the reporting by BVI financial institutions about financial accounts held by US taxpayers or foreign entities in which those taxpayers hold a substantial ownership interest.  The US FATCA Agreement was implemented by SI No. 75 of 2014, the Mutual Legal Assistance (Tax Matters) (No. 4) Order, 2014.  To supplement SI No. 75 of 2014 as it relates to US FATCA, there is SI No. 44 of 2015 that prescribes obligations that financial institutions must comply with such as the reporting obligations, the deadline for enrolment, the deadline for annual reporting and information as it relates to Inspection and Compliance of Financial Institutions.

4. Guidance Notes relating to Automatic Exchange of Information Agreements

• As it relates to both UK CDOT and US FATCA, the BVI Government issued Guidance Notes which have been prepared to provide practical assistance to financial institutions, their Directors and other officers in helping them to understand their obligations under these Agreements.

5. BVI Financial Account Reporting System (BVIFARS)

• As a result of the obligations under AEOI the Government of the Virgin Islands has created an online portal called the BVI Financial Account Reporting System (BVIFARS), a secure environment for BVI Financial Institutions to report all reportable accounts under these Agreements or Arrangement. 
• Reporting under the CRS; the UK CDOT and FACTA are only accepted via BVIFARS. In 2015, the BVI Government accepted its first reporting and exchanged information with the Government of the United States via BVIFARS.
• To ensure compliance, all BVI financial institutions with reportable accounts for a given year, have an obligation to enrol with BVIFARS by 1st April of the reporting year in which it first has something to report.
• As it relates to reporting, BVI Financial Institutions are to submit all reportable accounts no later than 31st May of the reporting year. 
• Failure to comply with any of the statutory obligations under these Orders can result in a Financial Institution being liable under the general penalty section of the Mutual Legal Assistance Tax Matters Act, 2003 (as amended).

6. BEPS (Base Erosion and Profit Shifting)

• The Inclusive Framework on BEPS led by the OECD’s Global Forum on Transparency and the Exchange of Information for Tax Purposes brings together over 100 countries and jurisdictions to collaborate on the implementation of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Package.
• BEPS refers to tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax jurisdictions where there is little or no economic activity
• The BVI is a member of the Inclusive Framework.  As part of this initiative the Global Forum on Transparency and Exchange of Information for Tax Purposes has concluded that no harmful tax regimes exist in the BVI.  The jurisdiction is also finalising domestic legislation to establish country-by-country reporting.

7. Exchange of Beneficial Ownership Information

• Following the Exchange of Notes between the Government of the Virgin Islands and the Government of the United Kingdom, on the sharing of beneficial ownership information, the BVI introduced a digital platform, the Beneficial Ownership Secure Search System (BOSSs) that enables direct access by BVI competent authorities to beneficial ownership on corporate entities incorporated in the BVI.  Under BVI law the information maintained on beneficial ownership must be accurate, adequate, current and accessible in a timely manner. From 1st January, 2016, Registered Agents had an obligation to collect and maintain beneficial ownership information for all Companies.  This requirement applies for new and existing entities.
• The new system is designed to meet the requirements of the Financial Action Task Force (FATF), the global standard setter in this area.  The key to the current standard is quick access to essential verified information for law enforcement authorities.  The BVI’s innovative platform gives BVI law enforcement authorities direct access to beneficial ownership information for the first time. The information can also be made available to UK authorities within an hour if urgent (24 hours under normal procedures), without alerting the owners of the information.
• The system is now in operational use, providing information on request to the National Crime Agency. It is managed by the BVI Financial Investigation Agency (FIA).

8. Fighting Financial Crime

• BVI is a reliable partner in the fight against financial crime, including money laundering. Its success is founded on highly regarded law and regulation.
• BVI is a respected and active participant in international bodies including the FATF and Financial Stability Board regional bodies, the global standard setter for the securities sector (IOSCO), and the Egmont Group of Financial Intelligence Units.

May 2018