SOS Substance on Substance: Season two - ITA investigations, enforcement powers and new legislative developments

In this episode, Partner Philip Graham, Global Head of Investment Funds and Regulatory, and Counsel Joshua Mangeot, our BVI economic substance specialist, consider the ITA’s investigation and enforcement powers under the Economic Substance (Companies and Limited Partnerships) Act 2018. Phil and Josh discuss some expected changes to the legislation, including limited partnerships registered in the BVI without legal personality being brought within the regime.

Key takeaways

• Companies and other legal entities which have not yet classified themselves or which have missed their first reporting deadline (which was 30 December 2020 for the majority of BVI companies incorporated before 2019) should take urgent action.
• “Nil returns” are required for each financial period even where an entity did not carry on any “relevant activity”.
• Deadlines have not been extended despite the Covid-19 pandemic.
• Failure to identify relevant activity or report without reasonable cause is an offence (and offences committed by a body corporate may lead to personal liability for directors and other individuals in limited circumstances).
• If an entity is determined to be non-compliant with economic substance requirements, it will be liable to civil penalties and this may trigger a spontaneous exchange of its beneficial ownership and economic substance information held on the registered agent “BOSS” database with overseas competent authorities.
• The ITA’s investigation powers are broad and may extend to other persons associated with the entity (for example, directors, officers or the registered agent).
• Failure to provide information to the ITA without reasonable excuse (or the intentional provision of false information) is an offence, so we recommend that entities and their operators use this as an opportunity to ensure that books and records are up-to-date and comply with BVI law requirements.
• If you receive an ITA notice or information request, we recommend taking advice if you are at all uncertain.
• Draft legislative changes were published on Friday 12 March – we expect the drafts will be amended but it appears likely that limited partnerships registered in the BVI without legal personality will be brought within the regime (in line with EU requirements) and that there may be changes to some of the fines and penalties. Previously only limited partnerships with legal personality were affected.

Our full guide regarding the ITA’s investigations and enforcement powers can be found here. This and our other client guides may need to be updated as appropriate if the legislative amendments are brought into force.

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