SOS Substance on Substance: Episode six - what should directors be doing now?

In the sixth episode of Harneys’ Substance on Substance series, Philip Graham and Joshua Mangeot examine good governance principles for BVI entities in the context of the classification process and what entities should be doing now in light of their statutory obligations.

Phil and Josh discuss the release of the BVI Economic Substance Code (the Code) and the responsibilities of directors of BVI companies.

Click below to listen.

 

Key takeaways:

  • The House of Assembly postponed the second and third reading of the Beneficial Ownership Secure Search System (Amendment) No 2 Act, 2019 due to Hurricane Dorian; they will meet next week to pass the law into effect
  • Following on from that, the International Tax Authority (ITA) will then finalise the Code
  • The day-to-day responsibility for managing the business and affairs of BVI companies falls on their directors, who are subject to various statutory and fiduciary duties – as such, they need to ensure they have classified their company and understood its obligations under the economic substance law as the first compliance periods have started and there are potentially onerous consequences for non-compliance
  • There are provisions in the BVI Business Companies Act 2004 (BCA) which broadly allow directors to rely upon expert advice when discharging their duties
  • The ITA has made it clear that it will expect to see robust documentary evidence of the basis of the entity’s classification, such as a formal memo of legal advice on the classification and/or board resolutions (the latter will typically be provided to the registered agent in some form as part of instructing it to make the relevant filings under the BOSS system)
  • There are existing statutory obligations under the BCA for BVI companies to keep records and underlying documents that enable the financial position to be determined at any point in time with reasonable accuracy – this includes a statement of assets and liabilities and records of receipts and expenditure. If the ITA is unable to determine a clear basis for the classification, there is a risk that companies (or their registered agent, directors or other functionaries) may incur additional scrutiny in the event of an ITA investigation if they are unable to produce the required evidence promptly on request

Stay tuned for more Substance on Substance.