British Virgin Islands: BVI Adopts Legislation To Implement The OECD Common Reporting Standard

The BVI has passed legislation to implement the Organisation for Economic Co-Operating and Development (OECD) Common Reporting Standard for the exchange of tax information (CRS). The amendments to the Mutual Legal Assistance (Tax Matters) Act, 2003, which implement CRS in the BVI, will come into force on 1 January 2016.

In order to comply with CRS, BVI Financial Institutions (FIs) such as investment funds will need to report information on the holders of ‘Reportable Accounts’ which are tax resident in ‘Reportable Jurisdictions’ to the BVI International Tax Authority (ITA). The information that is reported will in turn be reported to the home jurisdiction of the account holders under the procedures agreed between signatories to CRS related OECD measures.

What should BVI investment funds be doing to comply with CRS?

• BVI investment funds must register with the ITA on the online portal (the AEOI Portal). Most BVI investment funds will have been doing this anyway, in order to comply with US and UK FATCA and so this is not a new requirement. However, there are essentially no non-reporting financial institutions under CRS so some non-reporting financial institutions under FATCA will be Reporting FIs under CRS and this may trigger the need to register with the AEOI Portal for the first time.
• BVI investment funds will need to review their constitutional documents, offering documents and subscription agreements to ensure account opening procedures for new investors allow the fund to request and obtain the necessary information to classify the account and report to the ITA on an ongoing basis.
• Self-certification forms collecting the information a fund requires in order to classify and report under US FATCA, UK FATCA and CRS are due to be released in the BVI in January. These will be able to be used as is or modified and included in the fund’s subscription agreements. Investment funds will need to ensure that these, or questionnaires having the equivalent effect, are incorporated into the investor due diligence process once they are available.
• During the course of 2016 and 2017, the collection of tax residency information and reporting to the ITA will need to be extended to Pre-Existing Accounts (ie those that are in place as of 31 December 2015 and remain in place on 1 January 2016). Pre-Existing Individual Accounts must be reviewed regardless of value but there is a minimum threshold for Pre-Existing Entity Accounts of US$250,000. This means that Pre-Existing Entity Accounts under this threshold do not need to be reviewed unless their value increases above the threshold (although Reporting FIs can elect to dispense with the threshold and review all accounts).

What analysis do BVI investment funds need to conduct?

Once a BVI investment fund has collected the necessary due diligence information in relation it its investor accounts, it must:

• determine the residence of the Account Holder for tax purposes;
• if the Account Holder is an entity, determine if it is a passive non-financial entity (NFE); and
• determine the tax residency of any Controlling Person of a Passive NFE.

What about investment managers and advisers?

Unlike FATCA and UK FACTCA where BVI investment managers and advisers were generally classified as Non-Reporting FIs and not required to make any filings with the IRS or the ITA, under CRS an investment manager or adviser will be a Reporting FI. However, an investment manager or adviser is not likely to have any ‘Financial Accounts’ and will therefore have no ‘Reportable Accounts’ in respect of which it needs to report. Technically it will be required to make a registration on the AEOI Portal as a Reporting FI but it will not need to make any reports.

Timeline

There are several important deadlines to keep in mind in relation to the implementation of CRS.

• 30 April 2016 – Register with the ITA
• Calendar year 2016 – Collect due diligence information on New Accounts opened in that calendar year and Preexisting High Value Individual Accounts.
• 31 May 2017 – Make return with the ITA in respect of the calendar year 2016, reporting all New Accounts and all Preexisting High Value Individual Accounts.
• Calendar year 2017 – Collect due diligence information on New Accounts opened in that calendar year and Preexisting Lower Value Individual Accounts and Preexisting Entity Accounts.*
• 31 May 2017 – Make return with the ITA in respect of the calendar year 2017, reporting all New Accounts and all Preexisting Lower Value Individual Accounts and Preexisting Entity Accounts.