The system of tax information exchange in the BVI is largely modelled on international principles developed by the Organisation for Economic Co-operation and Development (the OECD). The competent authority responsible for dealing with tax information exchange in the BVI is the International Tax Authority (the ITA).
Types of tax information exchange regimes
There are two types of tax information exchange:
- 'automatic' exchange of information, AEOI for short, most popularly known as the US-focussed Foreign Account Tax Compliance Act (FATCA) and the OECD's more global Common Reporting Standard (CRS); and
- substantive 'on request' exchange of information (EOI) regimes contained in bilateral tax information exchange agreements (TIEAs), double taxation treaties/conventions (DTCs) and the OECD's multilateral Convention on the Mutual Administrative Assistance in Tax Matters (the Multilateral Convention).
The automatic exchange (AEOI) regime
As mentioned earlier, the best known examples of automatic exchange globally are FATCA and CRS.
Under FATCA BVI financial institutions must collect and report annually, and automatically, certain limited forms of tax and financial data on the accounts they hold for US persons (typically US citizens and permanent residents). In the BVI the information collected is reported to the ITA which then onward reports to the US Internal Revenue Service (IRS).
Whereas FATCA deals with reporting on US persons CRS mandates a similar form of reporting albeit on a global pool of taxpayers. CRS reporting relates to those financial institutions and tax-payers based in the participating CRS jurisdictions. As at the date of this article, 102 countries and territories do or will participate in CRS reporting in either 2017 or 2018. Reporting occurs in respect of the preceding tax year. In line with the UK and majority EU position, all UK Overseas Territories and Crown Dependencies, including the BVI, became early adopters of CRS. This means that the 2016 tax year was the first one to be reported on (by mid-2017). In contrast 'late adopter' jurisdictions such as Hong Kong and Switzerland have deferred CRS reporting for a year, meaning that the 2017 tax year will be the first one reported (by mid-2018).
Determining whether a BVI company or other person is subject to an obligation to report under FATCA or CRS is can be a complex task and is beyond the scope of the present article. In addition it should be noted that there are strict anti-avoidance provisions associated with AEOI regimes and it is generally expected that parties comply with the spirit of the legislation without seeking to circumvent requirements. We recommend that professional legal advice be obtained on these issues at the outset and prior to the set-up of new businesses or structures based in FATCA/CRS reporting jurisdictions such as the BVI.
On-request exchange of information (EOI)
Whereas the AEOI regime requires financial institutions to exchange fairly formulistic and anodyne data about the accounts of foreign taxpayers on their books, in contrast the 'on-request' regime deals with specific and potentially in-depth investigations into the affairs of named and designated tax payers with offshore or international holdings. Such investigations typically, though not exclusively, occur following data-leaks involving international financial centres.
There are presently two arrangements for this sort of EOI:
- requests made between countries and jurisdictions that are party to bilateral TIEAs or DTCs; and
- requests made between countries and jurisdictions under the framework of the Multilateral Convention.
EOI under TIEAs and DTCs
As at the date of this article the BVI is party to twenty-eight TIEAs with various third countries and territories.1 It is also party to one DTC with Switzerland. Despite the fact that the BVI is not a sovereign nation the UK has delegated significant authority to the local government to negotiate and conclude treaties internationally. In practice the BVI government has taken up this challenge fastidiously and has been an OECD 'white list' jurisdiction since August 2009.
Domestically, all TIEAs and any new DTCs are brought into force through subsidiary legislation issued under the Mutual Legal Assistance (Tax Matters) Act 2003 (the MLAT). The MLAT is the framework legislation in the BVI that governs the tax EOI generally.
Under this system, and subject to various safe-guards, a foreign country which is a party to a TIEA with the BVI may request documents and information relevant to the tax affairs of domestic tax-payers from the BVI competent authorities. Following receipt the BVI authorities, i.e. the ITA, would channel acceptable requests through to private persons subject to BVI jurisdiction in the form of notices issued under the MLAT. In practice individuals and companies based in the BVI are likely to be within the territorial scope of this regime.
EOI under the Multilateral Convention
The Multilateral Convention was developed jointly by the OECD and the Council of Europe as a way of streamlining the need for countries to agree on EOI through costly and time-intensive bilateral treaty negotiations which culminate in either a TIEA or DTC. There are currently 112 jurisdictions participating in the Multilateral Convention, including 15 jurisdictions covered by territorial extension, of which the BVI is one.2
The Multilateral Convention was extended to the BVI by the UK government and applies as of 1 March 2014. Similarly to TIEAs, the Multilateral Convention is implemented through subsidiary legislation issued under the MLAT. As such EOI under the Multilateral Convention operates domestically within the in BVI in a very similar way to the TIEA requests and notices procedure outlined above.
Legislative and judicial safe-guards
Even though the BVI is a participating jurisdiction in the Multilateral Convention and numerous TIEAs the BVI competent authorities must nevertheless abide by rules of law applicable to it under constitutional arrangements and court-based jurisprudence (from cases in both the BVI and elsewhere in UK's common law orbit). These rules principally relate to the private individual's rights under local law as well as under safe-guards contained in various tax EOI regimes.
In light of recent judicial pronouncements in the BVI and elsewhere, it is reasonably clear that directors, trustees and other similar fiduciaries of BVI companies may have a potential duty to guard against fishing requests and other possible abuses of process under tax EOI regime.3
Similarly under these principles, when issuing notices which demand that private persons disclose confidential information to the authorities, the ITA must ensure that constitutional rules of procedural fairness and due process are followed. In very high level terms such ITA notices should generally contain enough basic and contextual information to enable the recipient to determine the basis on which the originating (overseas) request may have been made. It is also acknowledged that the private person has a right to determine whether the notice and request have been validly made and are in compliance with the applicable EOI framework - in other words, to be in position to understand whether the request is a fishing exercise.
The basic and contextual details referred to above may, for example, include the name of the requesting state, the nature of the underlying investigation, the identity of the tax payer involved, the tax period under review and details of the applicable foreign law.
Failure to comply with an EOI obligation in the BVI may constitute a criminal offence punishable (on indictment) to a fine not exceeding US$100,000 or to imprisonment for a term not exceeding five years, or both.
Anyone receiving a notice to produce information under one of the EOI regimes in the BVI will need to delicately balance various competing interests: On the one hand, they should carefully consider whether they are subject a duty of confidentiality in respect of the information subject to disclosure and, if so, whether the request is a mere fishing exercise.
On the other hand, there is a legal duty to comply with valid notices and, additionally, the BVI regime contains strict anti-tipping off obligations on the recipients of notices (these obligations are similar to those seen in anti-money laundering regimes and mean that recipients are prohibited from discussing the matter with any third party except for legal counsel).
One thing is for certain, prudence here dictates that anyone in receipt of a request or notice under an EOI regime should immediately contact their professional legal advisors. At Harneys we have a dedicated team of lawyers and specialists working on various matters relating to the exchange of tax information who can advise clients on their obligations whether it be in relation to matters pertaining to "on request" exchange of information or "automatic" exchange of information. Please do feel free to contact us.
1 Aruba, Australia, Canada, People's Republic of China, Curacao, Czech Republic, Denmark, Faroe Islands, Finland, France, Germany, Greenland, Guernsey, Iceland, India, Ireland, Isle of Man, Japan, Netherlands, New Zealand, Norway, Poland, Portugal, Saint Maarten, South Korea, Sweden, United Kingdom and the United States of America.
2 The identity and status of implementation of countries participating in the Multilateral Convention is available here.
3 Quiver Inc. v International Tax Authority and Friar Tuck v. International Tax Authority Claims No. BVIHC201510339 and 340, for a summary of this case which Harneys litigated please see here.
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.