The British Virgin Islands (BVI) International Tax Authority (ITA) recently announced legislative amendments which require a Financial Institution (FI) to establish and maintain adequate systems and controls for ensuring compliance with the requirements and obligations under The Mutual Legal Assistance Act. As part of these requirements, all legal entities must have a compliance procedures manual established and implemented by December 31, 2023.
BVI Legislation
The BVI updated The Mutual Legal Assistance (Tax Matters) (Amendment) Act, 2022 and The International Tax Authority (Amendment) Act, 2022. Among the changes made, the amendments empower the ITA to request information and documents, apply for search warrants, conduct examinations under oath before a magistrate, undertake compliance inspections, and appoint examiners.
Policies & Procedures
A Reporting FI is required to establish, implement and maintain written policies and procedures to comply with The Mutual Legal Assistance Act. A Reporting FI’s policies and procedures must cover the following:
identifying each jurisdiction in which an Account Holder or a Controlling Person is resident for income tax or corporation tax purposes or for the purposes of any tax imposed by the law of the jurisdiction that is of a similar character of either of those taxes;
applying the due diligence procedures set out in the Common Reporting Standard; and
ensuring that any information obtained in accordance with this Act and a record of the steps taken to comply with this Act in respect of a Financial Account is kept for at least five years after the period within which the Reporting Financial Institution must report.
Failure to establish and maintain policies and procedures designed to identify Reportable Accounts in accordance with the BVI law may result in a fine not exceeding KYD$100,000 (approximately USD$120,000).
Compliance function
The International Tax Authority Act amendments also addressed compliance. This act requires an FI to establish and maintain adequate systems and controls, including a compliance procedures manual, for ensuring its compliance with the requirements of, and its obligations under:
the International Tax Authority Act and any mutual legal assistance legislation;
any Guidance or Rules issued by the ITA which apply to the legal entity;
any directives issued by the Authority that apply to a legal entity.
Compliance inspections
When conducting an authorized inspection, the ITA may:
inspect the premises and business, whether in or outside the BVI, including the procedures, systems and controls, of a legal entity;
inspect the assets, including cash, belonging to or in the possession or control of a legal entity;
examine and make copies of documents belonging to or in the possession or control of a legal entity that, in the opinion of the ITA, relate to the carrying on of services or business by the legal entity; and
seek information and explanations from the officers, employees, agents and representatives of a legal entity, whether verbally or in writing, and whether in preparation for, during or after a compliance inspection.
Depending on the circumstances, the ITA may or may not provide the FI with notice of its on-site inspection. Within a reasonable time of the inspection, the ITA will issue a compliance report which includes its findings, reasons for its findings, and actions (with deadlines) to be taken by the FI.
Advance Guidance
The ITA stated it intends to publish advance guidance on the requirements and mechanisms that would suffice to demonstrate and evidence compliance with the requirements of International Tax Authority (Amendment) Act, 2022, section 4I.
The BVI ITA already demonstrated its commitment to enforcement during the COVID pandemic in 2020 when it sent out notices to BVI FIs requesting a copy of the BVI FI’s CRS policies and procedures. The FI who received a notice was required to respond to the notice within ten working days of the date of the ITA notice.
I recommend you take the time to review your existing policies and procedures from the perspective of a tax authority to determine if there are gaps. If you have not yet drafted policies and procedures, now is the time to factor the cost into your budget rather than pay a much higher penalty.
For assistance, please contact me via my contact page or at elizabeth@elizabethmcmorrowlaw.com.
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