The Government of the Virgin Islands today outlines its action plan in response to a European Union (EU) initiative that seeks to address concerns that some countries are engaging in potentially harmful tax competition with EU member states. 

The EU assessed a range of factors including tax transparency, fair taxation and a commitment to combat base erosion and profit shifting (BEPS).

Any jurisdiction judged to be deficient within one or more areas will be placed on a list. Then, if the concerns are not fully addressed to the EU’s satisfaction by the end of 2018, a jurisdiction risks being placed on a blacklist facing what the EU has termed 'punitive sanctions'. 

A small number of countries have already been placed on this blacklist. However, there are 62 countries on a so-called 'greylist' – which includes the BVI. This means there is one area where concerns remain but a commitment to address it has been made.

It is the view of the EU that the BVI meets its requirements relating to tax transparency and those in relation to BEPS. However, the area which the EU has highlighted for the BVI is referred to as ‘economic substance’, meaning the existence of a tax regime without real economic activity. 

The UK Overseas Territories with financial centres, as well as Crown Dependencies, have all been advised that they need to address this issue.

The Premier is leading a team to chart a way forward, and has committed to pass appropriate legislation ahead of the December 2018 deadline set by the EU. The BVI Government will also continue to engage with the EU, its individual Member States, and the leaders of other jurisdictions, including the Overseas Territories. 

The Premier has also directed the establishment of a cross-governmental working group with input from the private sector. This will ensure that the industry and Government can work together effectively to make the best representation to the EU.

The Premier and Minister of Finance, the Dr. the Honourable D. Orlando Smith, OBE, said: “We have been engaging and continue to engage with international bodies such as the EU, the OECD, as well as our friends in the UK Overseas Territories and Crown Dependencies. The work of the team led by Neil Smith, Executive Director, BVI Office of International Business, has ensured that the EU is aware of our commitments in this area and is satisfied that we meet its requirements in relation to tax transparency and BEPS. 

“Nevertheless, the matter of economic substance is still to be addressed and we will be maintaining strong lines of communication with the EU to ensure that we can reach a satisfactory solution for all parties.

“In particular, I want to reassure the public and our industry that we are doing everything in our power to ensure the long-term protection and sustainability of our financial services sector.”

The BVI Government is working with the EU and other supra-national organisations to agree a technical definition of ‘economic substance’ which is yet to be set.

The report, Creating Value: The BVI’s Global Contribution, by international economics consultancy Capital Economics, concluded that “the BVI has substance in that it offers jurisdictional and tax neutrality to clients from all over the world, helping to create investment opportunities to meet the needs of global business and internationally mobile individuals.” It also found that “there is physical substance in the BVI with its high quality commercial court, a branch of the Eastern Caribbean Supreme Court, its new state-of-the-art International Arbitration Centre, and its registry of Corporate Affairs. This element of substance becomes increasingly relevant when companies are seen in their role as mechanisms for allocating risk and reward.”