British Virgin Islands economic substance – ITA investigation and enforcement powersDownload pdf
08 Sep 2022
The ITA is responsible for monitoring entities’ compliance with the economic substance (ES) compliance and reporting requirements. The ITA is now investigating entities and taking further action, where appropriate. This guide summarises the key points to consider, including various legislative changes made in 2022 to increase the ITA’s enforcement powers, and addresses some frequently-asked questions.
- Every company and limited partnership registered in the BVI (an Entity) has some obligations under the regime – even if an Entity did not carry on any ES relevant activity during a financial period, it must still submit a “nil return” in respect of such period and identify and report certain information under the reporting regime set out in the Beneficial Ownership Secure Search System Act (the BOSS Act). The director(s) or general partner(s) of every Entity (as applicable) should therefore put in place appropriate mechanisms to ensure compliance with the relevant Entity’s obligations under the ES regime.
- The scope of the prescribed ES information has been increased for financial periods of an Entity commencing on or after 1 January 2022. Entities should ensure that they are referring to the BOSS Act as amended. Part 12 of the ITA ES rules and explanatory notes has not yet been updated to reflect the new requirements due to delays caused by the EU in approving publication of the ITA’s revised guidance.
- Following amendments in 2022, the International Tax Authority Act (the ITA Act) formally requires an Entity to establish and maintain adequate systems and controls to ensure compliance with its ES compliance requirements (if any) and its reporting obligations, as well as certain other regulatory legislation as prescribed by the ITA Act.
- As currently drafted, the ITA Act also requires Entities to establish and maintain a compliance procedures manual in this regard. However, the ITA has stated that, to assist with the implementation of this requirement, it intends to publish advance guidance on the mechanisms that will suffice to demonstrate and evidence compliance with this requirement and that Entities are expected to have their manuals established and implemented by the end of 2023. We expect to publish further guidance on this requirement in due course.
- The ITA has broad investigation and enforcement powers and has previously indicated that it expects to see robust written evidence to show how an entity has classified itself for ES purposes, which may include minutes or written resolutions. We generally recommend that an Entity maintains a written record of its compliance procedures as part of its general obligation to maintain records and underlying documentation under BVI law. Keeping such records for at least six years from the end of each financial period should be of real practical benefit in the event of an ITA investigation.