Leader of Opposition Andrew Fahie has said he is wary of the legislation that government is introducing to keep off the European Union’s (EU) blacklist of noncompliant tax haven jurisdictions.
The bill entitled the Economic Substance (Companies and Limited Partnerships) Act, 2018 will present stricter policies for financial services providers registered in the territory.
“I must say that this is a very cagey Act because there is no guarantee when the legislation is passed that the EU will accept it in terms of meeting the standards that they want,” Fahie said.
“We have to find a balance between how do we get the legislation approved in such a way that it satisfies the EU but it doesn’t damage the financial services industry that we have, or damage the revenue,” the opposition leader said.
While Fahie remains concerned as to whether the EU will deem the law as satisfactory once it is passed, Premier Dr D Orlando Smith said last week that his government has been consulting with EU officials for the last several months to understand and address the concerns.
The EU’s concerns are in relation to an area in financial services known as ‘economic substance’.
What is economic substance?
When a financial services provider can prove that the taxes it pays to the BVI are the result of earnings that were generated through “real economic activity” within the territory, that company is said to have achieved economic substance. In other words, proof that an offshore company is paying taxes in the BVI because it largely does its work and earns its profits in/from the BVI.
The EU has given the BVI until the end of this month to pass this law on economic substance. Premier Smith will, therefore, introduce government’s proposed economic substance bill for debate during the next sitting of the House which begins on Thursday, December 13.
Below are the requirements of the BVI’s proposed legislation on economic substance.
“The Government recognises that the legislation will create challenges for some companies and limited partnerships. The BVI is not alone in facing these challenges,” Premier Smith said in a statement last week.
The BVI will be added to the EU’s dreaded ‘blacklist’ and subjected to diplomatic sanctions if it does not have these laws in place by the mandated time.
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