With the implementation of the Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting (BEPS) gaining strong traction, significant steps are being taken to refine the framework even more. Let’s look at recent amendments that affect multinational enterprises in the British Virgin Islands, and what important changes and deadlines they need to take note of.
Quick recap: the BEPS framework
It’s no secret that the international tax system is changing at a rapid pace. Thanks to coordinated collaboration by the Organisation for Economic Cooperation and Development (OECD), the European Union, and individual tax authorities and governments, the international market is attempting to tackle important tax issues. This includes base erosion and profit shifting (BEPS) which refers to tax planning strategies that exploit gaps and mismatches in tax rules to shift profits to low or no-tax locations where there is little or no economic activity.
To combat this issue, the Inclusive Framework on Base Erosion and Profit Shifting (BEPS) was formed which brings together over 115 countries and jurisdictions to collaborate on the implementation of the OECD/ G20 BEPS Package.
British Virgin Islands amendments to the BEPS framework
The British Virgin Islands (BVI) is a member of the OECD’s Inclusive Framework on BEPS, and October 2018 saw an amendment brought in by the BVI that requires Country-by-Country (CbC) reports for Multinational Enterprises (MNEs).
In essence, MNEs have to provide an annual return that breaks down key elements of their financial statements by jurisdiction. The CbC report acts as a template for MNEs to report, in the correct format, the details for each tax jurisdiction they do business in.
Who is affected by the CbC reporting requirements?
MNE groups are impacted by the new reporting requirements if they have annual consolidated group revenue in the preceding financial year of Euro 750 million or more. This includes any BVI company in a group of enterprises related through ownership or control that is required to prepare consolidated financial statements where the group includes two or more enterprises which are tax resident in different jurisdictions.
CRS reporting changes and registration deadlines
This amendment also changed the Common Reporting Standard (CRS) obligations that affect BVI financial institutions. Taken together, the BVI has now implemented FATCA, CRS and beneficial ownership registers. BVI financial institutions need to:
- Establish, implement and maintain written policies and procedures addressing their CRS obligations
- Register with the International Tax Authority (ITA)
- File a nil return with the ITA when they maintain no reportable accounts
It is important to note that existing non-reporting financial institutions must also register with the ITA, and they have until 30th April 2019 to do so. Going forward, any new non-reporting financial entities are required to register following their establishment.
New registration and notification obligations for MNE group members
Any BVI tax resident MNE group member must register electronically with the ITA by means of their portal no later than the last day of the MNE group’s annual accounting period which starts on or after 1 January 2018 (the process commences with accounting periods starting after 1 January 2019).
BVI tax resident MNE group members are obliged to register even if they are not the parent company. It’s important to note that any subsequent changes to this information must also be registered with the ITA. Failure to register with the ITA is an offence and MNE’s who don’t are liable for a fine of up to US$100 000.
Checklist: How CbC reporting works
- If the BVI entity is the parent company of an MNE group, it will need to file a CbC report with the ITA.
- The CbC report will need to include financial information for each jurisdiction in which the MNE group operates and information on each entity in that group.
- A BVI company which is part of the group is required to file a CbC report with the ITA, unless the parent entity files such a report with an authority in another jurisdiction that has an information exchange agreement with the BVI.
- The information filed in CbC reports will then be exchanged with tax authorities in other participating jurisdictions.
Remember, although the legislation was only brought in in October 2018, the first reporting year is still the fiscal year beginning on or after 1 January 2018.
How to approach the BEPS amendments
While the new reporting standards might seem like a daunting hurdle to overcome, institutions can follow two easy steps to help implement the BEPS changes.
Firstly, determine if the BVI entity is part of an MNE group. The criteria set out above are clear about which entities need to adhere to the new requirements. Secondly, confirm if they are a parent or constituent member of such a group and when the reporting obligations are required by. This will help determine and prioritise activities around registering with the ITA and implementing changes to existing systems and processes to ensure you remain compliant in line with the framework.
Given the requirements for being a MNE group this is going to have a fairly limited impact but we invite anybody potentially impacted by the new rules to contact our BVI or Mauritius offices to assist both with the reporting but also any related planning requirements that may follow.