The British Virgin Islands (BVI) this week outlined its action plan detailing key steps the jurisdiction pledges to undertake in order to allay EU concerns of harmful tax competition with the bloc.
In the EU’s assessment, a range of factors were taken into account including tax transparency, fair taxation and a commitment to combat base erosion and profit shifting (BEPS).
Any jurisdiction judged by Brussels to be deficient within one or more of these areas is placed on either a blacklist or an intermediary “greylist”. While just 9 jurisdictions remain on the EU blacklist, 62 countries appear on the “greylist”, including the BVI. The EU classifies the greylist as being for those countries where there is one area where concerns remain but a commitment to address it has clearly been set out.
The BVI said this week that it now meets its requirements relating to tax transparency and those in relation to BEPS. However, the area which the EU has highlighted for the BVI is referred to as “economic substance”, in other words the existence of a tax regime without any real economic activity underpinning it.
The UK Overseas Territories with financial centres, as well as Crown Dependencies, have all been advised that they need to address this issue. The Premier is leading a team to chart a way forward, and has committed to pass appropriate legislation ahead of the December 2018 deadline set by the EU.
Engaging and continue to engage
The BVI premier and minister of Finance, Orlando Smith, said: “We have been engaging and continue to engage with international bodies such as the EU, the OECD, as well as our friends in the UK overseas territories and crown dependencies. The work of the team led by Neil Smith, executive director, BVI office of international business, has ensured that the EU is aware of our commitments in this area and is satisfied that we meet its requirements in relation to tax transparency and BEPS.
“Nevertheless, the matter of economic substance is still to be addressed and we will be maintaining strong lines of communication with the EU to ensure that we can reach a satisfactory solution for all parties. “In particular, I want to reassure the public and our industry that we are doing everything in our power to ensure the long-term protection and sustainability of our financial services sector,” Smith added.