SOS Substance on Substance - Economic substance legislation and its impact on liquidations

• We are not seeing many clients move to liquidate BVI vehicles as, once they have classified themselves, many BVI entities find they are either (i) exempt from the ES requirements as they are not carrying on any “relevant activity” or are “non-resident” for tax purposes under the expanded definition in the ES legislation and Part 4 of the International Tax Authority (ITA) Rules, (ii) already compliant as an entirely passive “pure equity holding entity”, or (iii) able to achieve compliance through other simple reorganisational steps
• The ITA will expect that any applicable ES requirements will be complied with during the time an entity is in liquidation – so this is an area of interest to persons undertaking or contemplating a BVI liquidation
• However, if an entity has been dissolved prior to an ES reporting obligation falling due, it will not exist and therefore cannot make a filing (noting that it is conceivably possible for an entity to be restored by a court)
• Accordingly, directors/general partners and liquidators should (i) classify the entity (or confirm its classification remains correct), (ii) determine it is still carrying on, or receiving income from, any relevant activity (or if the business and receipt of income has ceased), (iii) consider the anticipated timetable of the liquidation alongside the entity’s ES “financial period” and reporting obligations, (iv) where necessary, put in place a compliance and/or reporting plan, and (v) ensure that they have maintained appropriate written records – particularly if the entity may still be in existence when a reporting deadline falls due
• Professional liquidators and insolvency practitioners may also wish to review their terms of engagement and ensure that they have sufficient contractual protections and access to information as they will assume primary responsibility for compliance or reporting obligations from the onset of liquidation
• In some cases, it may be desirable to elect or apply to the ITA to amend a “financial period” so there is a clear period for which the liquidator will be responsible for monitoring and, if necessary, reporting on compliance
• We anticipate further guidance and legislative amendments this year regarding the “striking-off” regime under the BVI companies and limited partnership legislation, so will address that topic in future updates

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