BVI Signs "UK FATCA"
The British Virgin Islands ("BVI") Government signed
an agreement ("UK/BVI IGA") with the United Kingdom
providing for automatic exchange of financial information relating
to UK tax payers who hold accounts with BVI financial institutions,
in November 2013. The agreement was effected by an exchange
of letters amending the existing Tax Information Exchange Agreement
originally signed in 2008. It closely follows the signing of very
similar agreements between the UK and the Cayman Islands, Jersey,
Guernsey and the Isle of Man. These arrangements are commonly
referred to as "UK FATCA" in recognition of the fact that
they owe their origin to the US's Foreign Account Tax
Compliance Act. Indeed, the UK/BVI IGA largely follows the
draft Model 1 IGA produced by the US Treasury.
The definition of a financial institution ("FI") that
will be subject to the UK/BVI IGA uses the same concepts as in the
US FATCA legislation ("US FATCA Regulations") and
includes a Custodial Institution, Depository Institution,
Investment Entity, or a Specified Insurance Company. In practice,
this will cover banks, custodians, nominees, trust companies and
trusts, investment funds, administrators, managers and advisers, as
well as certain insurance companies.
UK FATCA (unlike its US counterpart) does not provide for a
withholding tax to be applied nor is there any registration
requirement on foreign financial institutions. The BVI/UK IGA does
however provide for due diligence procedures and exemptions from
application in a similar format to the US FATCA Regulations. Unless
they can avail of one of the exemptions, FIs will be obliged to
undertake prescriptive due diligence obligations for identifying
reportable accounts under the UK/BVI IGA. The UK/BVI
IGA provides for BVI financial institutions to report information
annually to the BVI authority (likely to be the International Tax
Authority) on financial accounts that are held by UK individuals or
entities controlled by UK persons. The BVI authority will then
forward the UK tax payer information to HM Revenue and
Customs. The UK/BVI IGA also contains details of the
alternative reporting regime for UK resident non-domiciled
individuals.
Now that the UK/BVI IGA has been signed, it will need to be
brought into force by the BVI through the introduction of
legislation and relevant guidance. Reporting commences in 2016 with
respect to 2014 and 2015 and then annually thereafter.
Pre-existing accounts to which very different due diligence
requirements exist include all accounts opened up to 30 June
2014. BVI Financial Institutions opening new accounts after
30 June 2014 will be required to conduct due diligence on the
account holder and, in the case of accounts held by entities, on
the ultimate beneficial owners in accordance with Annex I of the
UK/BVI IGA.
The UK/BVI IGA is at resources.harneys.com/acton/attachment/6183/f-00bb/1/-/-/-/-/bvi.pdf
US/BVI Model 1 IGA to be concluded shortly
The BVI is intending to enter into a Model 1 IGA with the US and
it is expected to be concluded very shortly. It is expected
(and highly likely) that the US/BVI IGA will be substantially the
same as the Model I IGA entered into between Cayman and the US (a
copy of which is available here) BVI Reporting Financial
Institutions will be required to identify US accounts and report
specified information about those US accounts to the BVI authority.
The BVI authority will then pass this information on to the
Internal Revenue Service (IRS) on an automatic basis. As a
result of the US/BVI IGA, BVI Financial Institutions will be
"deemed compliant" with the requirements of US FATCA and
will not be subject to the withholding tax that may otherwise be
applied by US withholding agents.
BVI Reporting Financial Institutions will still need to apply for
a Global Intermediary Identification Number (GIIN) from the IRS and
register as Registered Deemed Compliant Foreign Financial
Institutions. Obtaining a GIIN will provide independent
certification to withholding agents of FATCA compliance. Once
the US/BVI IGA has been signed, BVI Reporting Financial
Institutions will be able to register and obtain a GIIN.
However, they will not be required to provide a GIIN to withholding
agents prior to 1 January 2015. Concern has been expressed by
some industry observers that withholding agents may insist on a
GIIN being produced from 1 July 2014 when FATCA is due to come into
force. IRS guidance does clearly provide that a Reporting
Financial institution under a Model 1 IGA does not need to provide
a GIIN prior to 1 January 2015. However, a Reporting
Financial Institution may need to register prior to 1 July 2014 if
it maintains one or more branches in jurisdictions which are not
covered by a Model 1 IGA. For example, a BVI Reporting
Financial Institution with a branch in Bermuda (which has signed a
Model 2 IGA) may need to have a GIIN by July 2014.
The IRS is due to publish the first list of GIINs on 2 June
2014. In order to be on this list, a financial institution
must submit its application online no later than 24 April
2014.
Further guidance on the implications of UK FATCA and US FATCA for
BVI and Cayman entities and the services to be offered by Harneys
Services will be issued in the coming weeks.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.