Several years ago, the Organization for Economic Cooperation and Development (OECD) set forth an Action Plan to restrict Base Erosion and Profit Shifting (BEPS), and strengthen Controlled Foreign Corporation (CFC) rules which Developed Countries deploy as part of their income tax systems to limit the artificial deferral or reduction of taxes via the use of offshore companies in offshore low tax jurisdictions.
The goal of this Action Plan was to curtail the use of BEPS strategies by multinational enterprises to manipulate tax rule gaps and mismatches to avoid or significantly reduce their tax burden. Given the growing dependence by the Developed Countries on corporate income tax revenues it was feared that they were suffering disproportionate tax revenue deficits.
Organization for Economic Cooperation and Development
The OECD is an international organization which seeks to build better policies for better lives. It aims to shape policies that foster prosperity, equality, opportunity, and well-being for all. Membership includes over 135 countries
European Union List of Non-Cooperative Jurisdictions for Tax Purposes
Around the same time, the European Union (EU) developed and published a blacklist of non-cooperative jurisdictions with the aim of identifying BEPS offenders. To be removed from the blacklist jurisdictions had to undergo reform and implement changes to their taxation policies.
British Virgin Islands Economic Substance (Companies and Limited Partnerships) Act 2018
In response to the OECD BEPS action plan and the EU List of Non-Cooperative Jurisdictions, the British Virgin Islands (BVI) passed the Economic Substance (Companies and Limited Partnerships) Act 2018 (ESA) which became effective January 1, 2019.
Under the ESA ‘legal entities’ carrying on a ’relevant activity’ are required to establish economic substance in the BVI. A legal entity is a business company or limited partnership with legal personality which includes foreign companies and foreign limited partnerships that are registered in the British Virgin Islands.
Legal entities which carry on any one or more of the following ‘relevant activities’ will be in scope and must comply with BVI economic substance requirements:
• Banking business
• Distribution and service centre business
• Financing and leasing business
• Fund management business
• Headquarters business
• Holding business
• Insurance business
• Intellectual property business
• Shipping business
Entities out of scope
Entities which are not legal entities or do not carry on any of the listed relevant activities will not be required to comply with economic substance requirements. They are still subject however to an annual review of their circumstances and certain filing obligations.
Are you aware of the status of your company as it relates to ESA in the BVI?
CCP Financial Consultants Limited
CCP Financial Consultants Limited is a BVI based, multidisciplinary financial services firm dedicated to providing premium financial solutions to clients around the world. It offers Company Management, Company Incorporation service in BVI BVI Licenced Insolvency Services, BVI Ship Registration, Accounting Services, BVI Voluntary Liquidation Services, Bank Account Opening Service and Economic Substance Services.
CCP has teamed with leading industry professionals to offer a comprehensive online BVI Economic Substance Assessment Platform which you can use to determine the status of your company as it relates to ESA and whether you need to comply.
If your company is subject to economic substance, CCP Financial Consultants Limited can offer a range of services, including virtual office, shared co-working solutions, personnel, bookkeeping, payroll, directorships, local audit, and other valuable solutions.
Please visit the website for more details on our full range of services and if required you can schedule a consultation for more information.