The British Virgin Islands (the BVI) recently approved changes to the Mutual Legal Assistance (Tax Matters) Act (the MLAT) requiring certain multinational enterprises (MNE) to file a country-by-country report (CbC Report) with the British Virgin Islands International Tax Authority (ITA), as part of the BVI’s implementation of the OECD’s Base Erosion and Profit Shifting (BEPS) framework.
The Common Reporting Standard (CRS) obligations in the MLAT were also amended to require BVI financial institutions to establish, implement and maintain written policies and procedures to comply with their CRS obligations and to file nil returns with the ITA when they have no reportable accounts.
Why has the MLAT been amended?
The country-by-country reporting changes to the MLAT are part of the BVI’s implementation of the OECD’s BEPS framework, implementing the country by country reporting and notification requirements. Taken together, the CRS and country-by-country reporting changes demonstrate BVI’s continued commitment to international best practice on exchange of information with participating tax authorities, adding to reporting and notification obligations under BVI’s implementation of FATCA, CRS and beneficial ownership registers.
What has changed for CRS reporting?
Under the changes to the MLAT, BVI financial institutions (FIs) must now:
- establish, implement and maintain written policies and procedures addressing their CRS obligations;
- register: all BVI FIs are now required to register with the ITA. While Reporting FIs should already have registered, non-reporting FIs will now have to register with the ITA; and
- file a nil return with the ITA when they maintain no reportable accounts.
What should BVI financial institutions do to comply?
BVI FIs which have delegated their automatic exchange of information (FATCA and CRS) compliance work to a third party service provider should review their service agreements (whether part of an administration agreement or a standalone agreement) to make sure that the agreement details the specific AEOI compliance obligations that have been delegated.
FIs’ written CRS policies and procedures should cover any CRS obligations not delegated to a service provider and where certain obligations have been delegated, procedures for oversight of the service provider.
Existing non-reporting FIs should register with the ITA by 30 April 2019. All FIs being set up going forward should register with the ITA by the 30th April following their establishment.
Who does country-by-country reporting impact?
MNE groups are caught by the country-by-country reporting requirements if they have annual consolidated group revenue in the preceding financial year of Euro 750 million or more and a BVI entity in the group. BVI entities should now consider whether they are part of an MNE group and address any reporting or registration and notification obligations.
Is your BVI entity part of an MNE group?
The amended MLAT applies to:
- any group of enterprises related through ownership or control that is required to prepare consolidated financial statements;
- where the group includes two or more enterprises which are tax resident in different jurisdictions; and
- where the total consolidated group revenue is Euro 750 million or more during the relevant fiscal year.
Guidance notes may be issued by the ITA to help businesses that may have responsibilities to report or register and notify information under the MLAT and we will issue a further client update if guidance notes are published.
What are the registration and notification obligations for MNE group members?
- Any MNE group member that is tax resident in the BVI must register electronically with the ITA (on the ITA’s electronic portal) no later than the last day of the MNE group’s annual accounting period which starts on or after 1 January 2018 (the Last Day).
- MNE group members that are tax resident in the BVI but are not the ultimate parent or surrogate parent of the group also have to register electronically with the ITA the identity and tax residence of the relevant reporting entity, no later than the Last Day.
- Any subsequent changes to this information have to be registered immediately with the ITA.
In practice, BVI entities in an MNE group with a calendar year accounting period will need to register with the ITA by 31 December 2018.
MNE group members that fail to register with the ITA when required commit an offence and are liable to a fine of up to US$100,000.
What are the reporting obligations for qualifying MNE Groups?
- Each ultimate parent entity of an MNE group that is tax resident in the BVI will need to file a CbC Report with the ITA in respect of the group’s reporting fiscal year.
- The CbC report will need to include aggregate financial information for each jurisdiction in which the MNE group operates and details of each constituent entity of the MNE group.
- A BVI constituent entity is required to file a CbC Report with the ITA unless the ultimate parent entity or surrogate parent entity of the MNE Group reports in another jurisdiction which has a qualifying competent authority agreement (information exchange agreement) with the BVI.
- The information filed in CbC Reports will then be exchanged with tax authorities in other participating jurisdictions.
The first reporting year under the MLAT is the fiscal year which began on or after 1 January 2018.
A reporting entity that is resident in the BVI must make its first CbC Report by no later than 12 months after the last day of the reporting fiscal year of the MNE group.
What action should BVI entities take now?
All BVI entities that are part of a group structure should now consider if they are part of an MNE group under the MLAT. If they are, they will need to confirm if they are a parent entity with reporting and registration obligations or another constituent entity with registration obligations to the ITA, and whether they have to comply with those obligations by 31 December 2018 or later.
How does country-by-country reporting affect BVI investment funds?
There is no general exemption from the CbC Report regime for BVI investment funds or their managers and each case should be looked at based on the specific circumstances. Given the thresholds that apply however, most BVI investment funds and investment management entities are not expected to fall within the scope of the CbC Report regime. In order for a fund/s to be in scope, all of the following questions would have to be answered 'Yes':
- Are consolidated financial statements required for the fund as part of a group of investment entities?
- Are the group entities domiciled in more than one jurisdiction?
- Is the revenue of the group Euro 750 million or more?
Revenue would include all revenue, gains, income and other inflows from the consolidated income statement or profit and loss statement and assets under management would not be considered revenue.
How can we assist?
If you would like advice on whether the amendments to the MLAT apply to your BVI entity or group and require assistance with any of the notification or registration requirements, feel free to contact any member of Harneys’ automatic exchange of information team or your usual Harneys contact or visit www.harneys.com/bvi.
 Those FIs falling under an exemption to report under the CRS regime such as trustee documented trusts, exempt collective investment vehicles, pension funds.
 A constituent entity that in/directly owns a sufficient interest in one or more other constituent entities of the MNE group so that it is required to prepare consolidated financial statements under accounting principles generally applied in its jurisdiction of tax residence, and there is no other constituent entity of the MNE group that in/directly owns such an interest in the first constituent entity.