On 29 October 2014, the British Virgin Islands (“BVI”) was among 50 other jurisdictions which signed a Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (the “MCAA”) demonstrating its commitment to implement the CRS, an international regime developed by the OECD to facilitate and standardise the exchange of information on residents’ assets and income, primarily for taxation purposes.
The Mutual Legal Assistance (Tax Matters) (Amendment) (No.2) Act, 2015 (the “Amendment Law”) was enacted in the BVI on 29 December 2015 (and gazetted on 31 December 2015) and must be complied with by BVI Reporting Financial Institutions (“Reporting FIs”) from 1 January 2016.
Whilst completely separate regimes, the CRS imposes similar reporting, classification, notification, due diligence and other obligations as are required under the US Foreign Account Tax Compliance Act (“FATCA”) regime.
However, a key difference is that reporting under the CRS relates to tax residency, not citizenship. Under the Amendment Law, the Financial Secretary is the competent authority for purposes of CRS but it is expected that the International Tax Authority of the BVI (the “ITA”) will be designated to perform the CRS functions under the Amendment Law. The scope of Reporting FIs reporting obligations to the ITA will significantly increase in 2017, as will the level of account information disseminated by the ITA to global tax authorities.
Entities classified as Reporting FIs (which, as with FATCA, encompasses Custodial Institutions, Depositary Institutions, Investment Entities and Specified Insurance Companies) are required to meet the obligations under the Amendment Law. The CRS is intended to apply more broadly than FATCA, with the scope of exemptions available under the CRS being much narrower and Financial Institutions that are not currently reporting under FATCA, may be classed as Reporting FIs for the purposes of the CRS and will therefore need to implement a suitable compliance program.
There is no sponsoring entity regime under the CRS and, as a result, entities which are classified as Sponsored Investment Entities for the purposes of FATCA will likely be classified as Reporting FIs for the CRS.
Exemptions which are available, as detailed further in the Amendment Law, are as follows:
(a) a governmental entity, international organisation or central bank, other than in certain limited circumstances connected to their commercial financial activities;
(b) certain retirement funds, pension funds of an entity listed in (a) and qualified credit card issuers;
(c) entities that present a low risk of being used to evade tax, which have substantially similar characteristics to entities listed in (a) and (b) above and are specifically identified under BVI law as ‘Non-Reporting Financial Institutions’;
(d) an exempt collective investment vehicle; or
(e) a trust where the trustee is a Reporting FI and will report in respect of the trust.
Notification to the International Tax Authority
The BVI Financial Account Reporting System (“BVI FARS”) is being updated to facilitate reporting by Reporting FIs for CRS purposes. It is expected that Reporting FIs who have already completed the notification process for FATCA will need to “refresh” their notifications. Reporting FIs that have been newly captured under the CRS will need to undertake the full notification process in order to register with the ITA in preparation for the commencement of reporting. BVI FARS can be accessed through http://www.bvi.gov.vg/fars. There is no requirement for Reporting FIs to obtain a GIIN for the purposes of CRS compliance.
Due diligence and Client on-boarding.
With effect from 1 January 2016, Reporting FIs will need to have updated on-boarding procedures in place to identify and perform prescribed due diligence on ‘Reportable Accounts’. Reportable Accounts consist of custodial/bank accounts (for Custodial Institutions or Depositary Institutions), equity or debt interests (for Investment Entities), insurance policies for Specified Insurance Companies, in each case held by or controlled by any person or entity which is resident for tax purposes in any jurisdiction contained in the list of participating jurisdictions.
In addition Reporting FIs will also need to commence classification of pre-existing account holders with a phased in timetable to allow remediation of accounts opened prior to 1 January 2016. The ITA is expected to release updated self-certification forms (one for individuals and one for entities) which are designed to be used by Reporting FIs to collect the necessary due diligence information from account holders for both FATCA and CRS reporting purposes.
Reporting FIs will need to report annually to the ITA for the purposes of the CRS. The first reports to the ITA are due by 31 May 2017 in respect of new accounts opened during the 2016 calendar year. The Amendment Law makes it clear that there is no obligation to file nil reports, but Reporting FIs may do so on a voluntary basis.
Reports should be filed with the ITA via the BVI FARS and will be exchanged between the ITA and partnering tax authorities in Participating Jurisdictions.
Key Dates and Deadlines
31 December 2015 – Accounts opened on or prior to this date will be deemed to be preexisting accounts.
1 January 2016 – Accounts opened on or after this date will be classed as new accounts. Due diligence information should be collated as part of the account opening process to determine whether it is a Reportable Account.
31 December 2016 – Reporting FIs to complete due diligence on high value (i.e. balance or value that exceeds USD $1,000,000+ as of 31 December 2015) preexisting accounts held by individuals to determine if they are Reportable Accounts.
30 April 2017 – Reporting FIs that have reporting obligations for the 2016 calendar year to complete notification to the ITA.
31 May 2017 – Reporting FIs to make first report to the ITA.
31 December 2017 – Reporting FIs to complete due diligence on lower value preexisting accounts held by individuals to determine if they are Reportable Accounts (note: there is no de minimis balance exclusion for individual accounts). Reporting FIs to complete due diligence on all preexisting accounts held by entities with a balance in excess of USD$250,000 as at 31 December 2015 (or any preexisting accounts held by entities who subsequently had a balance in excess of USD$250,000 as at 31 December 2016) to determine if they are Reportable Accounts.
Action to be taken
Documentation updates for investment funds
Investment funds may need to update offering documents to include additional disclosures specifically around the CRS. Subscription documents should also be updated to include revised self-certification forms and to ensure that they contain an express waiver of any statutory confidentiality obligations which may apply in an investor’s jurisdiction of domicile which would prevent the disclosure of investor information by the fund to the ITA or onward reporting by the ITA to a Participating Jurisdiction.
Where an investment fund utilises the services of a third party administrator, the administrator should be involved in any subscription document updates to ensure that information collated for the CRS as part of the subscription package is completed in a manner which makes it easy for the administrator to transpose data onto the administrator’s systems. Administration agreements for investment funds may need to be updated to extend the services provided to cover CRS requirements.
The UK is expected to phase out what is casually referred to as “UK FACTA” under the Intergovernmental Agreement with the BVI government. However, as both UK FATCA and the CRS will be operational during 2016, Reporting FIs will need to file returns under the CRS, with supplementary information on preexisting low-value individual accounts and preexisting entity accounts to satisfy UK FATCA.
Note that the US is not a Participating Jurisdiction and US FATCA will continue to operate as normal.
Should you require further information then please contact:
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