BVI Enacts Legislation Implementing OECD Common Reporting Standard
The government of the British Virgin Islands ("BVI") has amended the Mutual Legal Assistance (Tax Matters) Act, 2003 in order to enact domestic legislation implementing the OECD Common Reporting Standard ("CRS") which was published on 31 December 2015 (the "BVI CRS Legislation").
It is not currently intended to issue guidance notes in relation to the implementation of CRS in the BVI given the extensive guidance published by the OECD by way of commentary to CRS and in the CRS Implementation Handbook.
The principles under the BVI CRS Legislation are very similar to FATCA and the BVI US and UK FATCA legislation (collectively "FATCA"), although there are some important distinctions. For example, while US FATCA focused on citizenship and tax residency, CRS only focuses on tax residency. Given the extensive overlap with the BVI UK FATCA regime, it is proposed that this regime be subsumed into CRS by 2017.
What is CRS?
CRS is the OECD initiative for the global automatic exchange of information for tax purposes ("AEOI").
Currently over 90 jurisdictions, including the BVI, have committed to the implementation of the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters and over 60 jurisdictions have signed a Multilateral Competent Authority Agreement which permits participating countries to enter into agreements that, inter alia, provide for AEOI. For the full list of countries, please see the OECD's AEOI: Status of Commitments.
The US has not agreed to adopt CRS, instead continuing to rely on FATCA and its related network of intergovernmental agreements to achieve its AEOI objectives.
The BVI has agreed to the exchange of financial account information with the first group of participating jurisdictions ("Participating Jurisdictions") under CRS by September 2017. The BVI International Tax Authority ("ITA") will publish a list of those Participating Jurisdictions shortly.
The obligations under the BVI CRS Legislation apply to Reporting Financial Institutions ("Reporting FIs").
As with FATCA, the key classifications of a Financial Institution ("FI") are a Depository Institution, Custodial Institution, Specified Insurance Company and an Investment Entity. The classification definitions under CRS are broadly similar to those under FATCA.
Reporting FIs are defined as FIs that are not Non-Reporting FIs. Non-Reporting FIs include:
(a) governmental entities, international organisations or central banks, save where involved in certain commercial financial activity;
(b) broad or narrow participation retirement fund, a pension fund for a governmental entity, international organisation or central bank, or a qualified credit card issuer;
(c) other entities identified as being low risk for tax evasion purposes, which have substantially similar characteristics to those listed under (a) and (b) above and are specifically defined under BVI law as Non-Reporting FIs;
(d) an exempt collective investment vehicle; and
(e) a trust whose trustee is a Reporting FI that reports all Reportable Accounts of the trust.
It should be noted that the list of Non-Reporting FIs is not as extensive as it is under FATCA.
Key Obligations under the BVI CRS Legislation
As with FATCA, the BVI CRS Legislation requires:
(a) the establishment by Reporting FIs of arrangements (i.e. policies and procedures) to identify, and apply due diligence procedures to, an Account Holder or Controlling Person that is tax resident in a jurisdiction which has entered into an agreement under which there is an obligation to provide the information set out in CRS ("Reportable Jurisdiction");
(b) that due diligence information, and a record of the procedures taken to comply, must be retained for six years from the end of the year the information was obtained or the procedures were carried out;
(c) a Reporting FI with reporting obligations to electronically notify the ITA (before 30 April of the first year the Reporting FI is required to comply with the reporting obligations of the name and categorisation of the Reporting FI and the name, address designation and contact details of an individual authorised to be the principal point of contact of the Reporting FI); and
(d) a Reporting FI to electronically file a return (report) of Reportable Accounts with the ITA before 31 May of the year following the calendar year to which the report relates.
Accordingly, the first reporting year under the BVI CRS Legislation is 2016 with reports due by 31 May 2017. There is no obligation under the BVI CRS Legislation to make nil returns where there are no Reportable Accounts, although a Reporting FI can elect to do so.
Schedule 4 to the BVI CRS Legislation contains the wording of CRS, with some slight variations, which is the account due diligence and reporting standard to which each Participating Jurisdiction has agreed. While no Account Holder self-certification forms have yet been published, the BVI government has indicated that the ITA is considering the drafting of an appropriate form.
A Reportable Account shall include an account that is held by an individual or entity that is tax resident in any one or more Reportable Jurisdiction(s), and, as with FATCA, there is a requirement to look through Passive NFFEs to report on their ultimate Controlling Persons.
Accordingly, it is important that a Reporting FI ensures that their systems can identify Account Holders (and their 'know your client' information) in each of the Participating Jurisdictions from 1 January 2016.
To assist with its interpretation, the OECD has published detailed commentary on CRS.
It should be noted that the ITA's enforcement powers and the penalties for non-compliance with CRS are the same as those under FATCA. The penalties on summary conviction are a fine not exceeding US$5,000 or imprisonment for a term not exceeding two years, or both and on conviction on indictment, a fine not exceeding US$100,000 or imprisonment for a term not exceeding five years, or both.
What are the important dates?
Notable dates and deadlines include the following:
(a) pre-existing Accounts are those that are open on 31 December 2015, with New Accounts being those opened on or after 1 January 2016;
(b) due diligence procedures for identifying high-value pre-existing individual accounts must be completed by 31 December 2016;
(c) due diligence procedures for identifying lower-value pre-existing individual accounts and entity accounts shall be completed by 31 December 2017;
(d) each Reporting FI that has reporting obligations for the 2016 calendar year will need to register with the ITA no later than 30 April 2017; and
(e) the first report to the ITA of Reportable Accounts is required by 31 May 2017.
Further updates on CRS will be published when the self-certification forms and related guidance (if any) are issued.
For further information or advice on the application of CRS, please speak with your usual Maples and Calder contact or any one of our FATCA / CRS experts listed above or on our dedicated FATCA and CRS webpage.