BVI economic substance – ITA issues updates regarding compliance and reporting following Covid-19 outbreak
The BVI International Tax Authority (ITA) has issued two updates in light of the Covid-19 outbreak, which include details of temporary arrangements for entities balancing their economic substance obligations with meeting the challenges and mitigating risks presented by the outbreak.
On 19 March 2020, the ITA confirmed that:
- It currently expects to maintain its operational frameworks and meet its international obligations and does not expect to make any changes to previously announced reporting deadlines (in relation not only to economic substance but also to the Common Reporting Standard, Foreign Account Tax Compliance Act, Country-by-Country Reporting, and Exchange of Information on Request domestic legal frameworks).
- Nevertheless, the ITA is monitoring the international landscape carefully and will consider any appropriate adjustments in the event that applicable international deadlines are modified.
- Whilst entities should seek to comply with their obligations, it intends to adopt a reasonable and practical approach where entities are obliged to make adjustments to their operating practices to mitigate threats from Covid-19 and will not seek to prejudice those legal entities who temporarily adjust their normal operating practices accordingly.
On 27 March 2020, the ITA published further guidance on its approach – in particular in relation to the “direction and management” substance requirement, which is not relevant to entities conducting “holding business” as a “pure equity holding entity”.
The guidance confirms that:
- Where possible, alternate directors in the BVI should be appointed in order to meet substance requirements.
- All directors do not have to attend Board meetings in the BVI - only as many as required to make the meeting quorate (and virtual meetings may be preferred).
- Not all Board meetings need to be held in the BVI - only those related to core income generating activities.
- Where it is still not possible to have a Board meeting in the BVI or to meet some other substance requirement due to restrictions (whether in the BVI or otherwise) due to the Covid-19 outbreak, then entities should retain documentation to be able to support such claims for the applicable periods of time affected, and;
- Individual requests should be made to the ITA for any extension of time within which to comply with Notices, along with any supporting evidence.
The ITA has emphasised that this is a temporary arrangement and urged entities to otherwise comply with full substance requirements (including filing deadlines), as this guidance will only apply where entities need to make adjustments to their usual operating practices to the extent necessary to manage threats from the Covid-19 outbreak.
If you have any questions regarding BVI economic substance or how your entity may be affected, please contact our team of specialists at BVIeconomicsubstance@harneys.com. Our online classification solution is available for use at https://economicsubstance.vg.