BVI adopts OECD’s Common Reporting Standard for financial institutions

By Vanessa King, Partner, Head of Corporate and Commercial Department, O’Neal Webster and Dr. Alecia Johns, Associate, Litigation Department, O’Neal Webster

The integrity of tax systems around the world has been challenged for years, stymied by undetected, illegal evasion tactics. In an attempt to detect and deter such actions, in 2013 the Organisation for Economic Co-operation and Development, the OECD, in conjunction with G20 countries and others, endorsed a new global standard known as the CRS, or Common Reporting Standard. This endorsement signaled the beginning of a systemic transformation in the effort to curb the loss of tax revenues. Under the CRS, cooperating countries will automatically exchange financial information regarding bank accounts, transactions, and financial flows from local institutions on a periodic basis, enabling law enforcement and tax authorities to follow up on any leads they may have.

Ninety-seven countries initially signaled their intent to adopt the CRS, with 58 of these countries formally committed to early adoption, including the British Virgin Islands, where legislation was passed in December 2015 that requires the domestic implementation of the CRS. That legislation came into force on 1 January 2016, and specifically sets out the obligations of “Reporting Financial Institutions” under the Mutual Legal Assistance (Tax Matters) (Amendment) (No. 2) Act, 2015. This article offers a condensed overview of the CRS and highlights its implementation in the BVI. For a more detailed discussion, please access CRS Guidelines in PDF format, here.

A Global FATCA

The CRS framework expands on previously established Intergovernmental Agreements that were designed to implement FATCA—the United States’ Foreign Account Tax Compliance Act. In fact, many consider the CRS to be the “global FATCA” given that it aims to facilitate a wider and more uniform basis for due diligence and information exchange among tax authorities around the world. However, an important distinction to note is that CRS reporting obligations flow from an individual’s tax residency as opposed to citizenship.

FATCA requires only that U.S. taxpayers (citizens) who directly or indirectly hold financial accounts be identified and reported. In contrast, the CRS requires that the residence of all reportable direct or indirect account holders be reported.

Who Must Report and When

Entities obligated to collect and report account information under the CRS, as adopted by the BVI, are those defined as Reporting Financial Institutions. They include:

  • Depository Institutions: Savings banks, commercial banks, loan associations, and credit unions.
  • Custodial Institutions: Custodian banks, brokers, and central securities depositories.
  • Investment Entities: Entities investing, reinvesting, or trading in financial instruments, portfolio management, or investing, or managing financial assets.
  • Specified Insurance Companies: Generally, includes most life insurance companies.

While there are many facets to a Reporting Institution’s obligations—too numerous to define in an overview—the following key dates should be noted.

  • 31 December 2015: Accounts opened on or prior to this date will be treated as ‘pre-existing accounts’.
  • 1 January 2016: New account opening procedures to record tax residence must be in place from this date as accounts opened on or after this date will be treated as ‘new accounts’.
  • 31 December 2016: Deadline for the completion of due diligence procedures for identifying high-value, pre-existing individual accounts.
  • 30 April 2017: Deadline for Reporting Financial Institutions in the BVI to provide notification to the BVI International Tax Authority (ITA) that it has reporting obligations under CRS.
  • 31 May 2017: Reporting Financial Institutions in the BVI must make their first report to the ITA in respect of all Reportable Accounts maintained in 2016.
  • 30 September 2017: The first exchange of information between countries relating to new accounts and pre-existing individual high-value accounts is to take place by this date.
  • 31 December 2017: Deadline for the completion of due diligence procedures for identifying low-value, pre-existing individual accounts and entity accounts.

Implementing the CRS Reciprocal Automatic Exchange Framework

A key aspect of CRS implementation is the automatic exchange of information, which involves the systematic, electronic transmission of “bulk” taxpayer information by the source country to the residence country, concerning various categories of income (e.g. dividends, interest, etc.). The goal of this exchange is to provide timely information on non-compliance—where tax has been evaded either on an investment return or the underlying capital sum—even where tax administrations have had no previous indications of non-compliance.

It is worth noting here that CRS implementation in the BVI, and elsewhere, may overlap with current FATCA programs or Intergovernmental Agreements. Thus, Reporting Financial Institutions must identify potential system and process gaps driven by differences in order to efficiently and completely comply across all programs and agreements. In this regard, we recommend that you consult with your BVI legal counsel.

Additionally, the Reciprocal Automatic Exchange can pose significant challenges for funds managers resident in jurisdictions adopting the CRS, such as the BVI. Funds may be required to conduct due diligence to identify financial accounts held directly or indirectly by residents in a large number of partner jurisdictions. Therefore, they may need to re-evaluate their current approach to FATCA compliance in order to accommodate the sheer volume of additional information to be reported to the local tax authorities for exchange with the partner jurisdiction under the CRS.

Finally, security measures are an imminent concern for Reporting Institutions in the storage, retrieval, and transmission of electronic data. Information Technology systems will require extra scrutiny, and steps should be taken now in order to meet the 30 September 2017 deadline for the first exchange of information.

Conclusion

The scope of information that will ultimately be subject to reporting obligations will be determined by the jurisdictions that have established a system of reciprocal exchange with the BVI. These jurisdictions will be made public in a published list. It is therefore crucial for Reporting Financial Institutions to keep abreast of any changes, as this is likely to develop over time.

The authors of this overview can assist readers with further information, or individual guidance, in the specific obligations, including compliance with the CRS now in force in the BVI. Please contact O’Neal Webster Partner Vanessa King, Head, Corporate and Commercial Department, at +1 284 494-5808 or VKing@OnealWebster.com or Dr. Alecia Johns, Associate, Litigation Department at Ajohns@OnealWebster.com

We invite you to review our BVI Guidelines on CRS in more detail here >>> [Download PDF]

O'Neal Webster is a leading offshore law firm in the British Virgin Islands providing superior legal services to clients globally. The firm is a member of Lex Mundi, the world's largest association of independent law firms.

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