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Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Virgin Islands (British) 2013
PHASE 2: IMPLEMENTATION OF THE STANDARD IN PRACTICE
November 2013 (reflecting the legal and regulatory framework as at May 2013)
This work is published on the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the OECD or of the governments of its member countries or those of the Global Forum on Transparency and Exchange of Information for Tax Purposes. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.
Please cite this publication as: OECD (2013), Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Virgin Islands (British) 2013: Phase 2: Implementation of the Standard in Pratice, OECD Publishing. http://dx.doi.org/10.1787/9789264202634-en
Series: Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews ISSN 2219-4681 (print) ISSN 2219-469X (online)
OECD 2013
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TABLE OF CONTENTS 3
Table of Contents
About the Global Forum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Information and methodology used for the peer review of the Virgin Islands . . .11 Overview of the Virgin Islands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Recent developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 A. Availability of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A.1. Ownership and identity information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A.2. Accounting records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A.3. Banking information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 21 48 57
B. Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 B.1. Competent Authoritys ability to obtain and provide information . . . . . . . . 62 B.2. Notification requirements and rights and safeguards. . . . . . . . . . . . . . . . . . 71 C. Exchanging Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C.1. Exchange of information mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C.2. Exchange of information mechanisms with all relevant partners . . . . . . . . C.3. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C.4. Rights and safeguards of taxpayers and third parties. . . . . . . . . . . . . . . . . . C.5. Timeliness of responses to requests for information . . . . . . . . . . . . . . . . . . 75 76 84 85 88 91
4 TABLE OF CONTENTS Annex 1: Jurisdictions Response to the Review Report . . . . . . . . . . . . . . . . . .105 Annex 2: List of All Exchange-Of-Information Mechanisms . . . . . . . . . . . . . 107 Annex 3: List of All Laws, Regulations and Other Material Consulted. . . . . 109 Annex 4: Persons Interviewed During On-Site Visit . . . . . . . . . . . . . . . . . . . . .111
EXECUTIVE SUMMARY 7
Executive Summary
1. This report summarises the legal and regulatory framework for transparency and exchange of information in the Virgin Islands, as well as the practical implementation of that framework. The international standard which is set out in the Global Forums Terms of Reference to Monitor and Review Progress Towards Transparency and Exchange of Information, is concerned with the availability of relevant information within a jurisdiction, the competent authoritys ability to gain timely access to that information, and in turn, whether that information can be effectively exchanged with its exchange of information (EOI) partners. 2. The Virgin Islands is one of the Overseas Territories of the United Kingdom. Economically it is mainly dependent on tourism and the financial services industry, including a significant number of company registrations. With respect to the financial services industry the Virgin Islands has a developed regulatory framework, but this was not enacted with the specific objective of enabling effective exchange information for tax purposes. In recent years, the Virgin Islands has made a number of changes to its legal and practical framework to increase transparency and enable the effective exchange of information for tax purposes. 3. Obligations to ensure availability of ownership and identity information for companies and partnerships are generally in place, as both companies and limited partnerships are required to keep a register of its shareholders or partners. In addition, the registered agents of these entities must also keep full ownership information on their clients. In practice, ownership information on companies has not been exchanged in all cases where this was requested, including in cases where such information was not available. The Virgin Islands should therefore continue to use all mechanisms at its disposal to ensure that ownership information in respect of companies is available. The issuance of bearer shares by Virgin Islands companies is possible, but these are immobilised through a custodial arrangement. This custodial arrangement effectively immobilises all bearer shares. Since July 2012, not only the custodians but also the registered agents of the companies that have issued bearer shares, must keep full ownership information on the owners of such shares.
8 EXECUTIVE SUMMARY
4. In respect of trusts the Virgin Islands rely for the most part on AML/ CFT legislation, which requires that identity information on the trustees, settlors and beneficiaries be kept in all cases where the trust represents a normal or a higher level of risk in terms of money laundering or terrorist financing. In other circumstances, such as for non-professional trustees, reliance can be placed on common law obligations for the availability of information on the identity of the settlors and beneficiaries. Taken together, the obligations under AML/CFT legislation and common law ensure the availability of identity information in respect of trusts. 5. Although general record-keeping obligations already existed, more comprehensive requirements were introduced in November 2012 for companies and limited partnerships to keep reliable accounting records, including underlying documentation, for a period of at least 5 years. However, the requirement to keep underlying documentation does not specify the type of underlying documentation to be kept, although it is noted that the Virgin Islands interprets it as including invoices and receipts. In respect of general partnerships and trusts no consistent obligations to maintain reliable accounting records, including underlying documentation, are in place. In practice, accounting information was not fully provided in many of the cases where requested. Although this may be mainly due to deficiencies in the processes of the Virgin Islands competent authority at the time, the lack of regular monitoring and enforcement of the accounting record keeping obligations of the entities that are not licensed service providers may affect the availability of this information. 6. Banking information is required to be kept by all banks, and has also been available where this was requested in practice. 7. The Virgin Islands has enacted a specific law to grant their authorities access powers to obtain and exchange information for the purposes of complying with a request for information under a Tax Information Exchange Agreement. Since July 2011, this law provides the Virgin Islands competent authority with the power to obtain any information held by any person believed to be in possession or control of that information, without any further conditions. Previously, access to information other than ownership information (and most notably accounting information) was not guaranteed. 8. The Virgin Islands has a total of 23 signed TIEAs, which cover a range of relevant partners. The TIEAs contain all provisions which allow the Virgin Islands to exchange all foreseeably relevant information. Currently, 14 of these TIEAs are in force, and the Virgin Islands has taken all steps necessary for almost all of the other TIEAs to enter into force. 9. During the three-year review period from 1 July 2009 to 30 June 2012, the Virgin Islands received 123 EOI requests from nine partners. A
EXECUTIVE SUMMARY 9
final response was provided within 90 days in 64% of cases, and within 180 days in 80% of the cases. Ten requests from 2012 are still outstanding, and a response was provided after more than 180 days in respect of the remaining requests. However, peers have indicated that in a significant proportion of the cases, the responses were incomplete and no explanations were given as to why this was the case. The main reason for this is that no clear organisational process was in place during the review period, and the Virgin Islands competent authority did not check whether the information obtained fully and accurately fulfilled the request. In addition, information was generally only obtained from the registered agents of the entities, which did not always have the obligation to have the information available, meaning that they were not always in a position to provide it. Finally, the available compulsory powers have not been used to enforce the production of information in cases where the information was not or only partially obtained. 10. In July 2012, the International Tax Authority (ITA) was established and designated to act as the Virgin Islands competent authority. The ITA has established comprehensive procedures and checklists for the gathering and exchange of information for tax purposes. Information is now obtained from the person who has the obligation to have that information available, and checks are performed by the ITA before transmitting the information to the requesting jurisdiction. The new procedures established by the ITA appear to be sufficient to handle incoming requests in a timely manner, but its practical implementation could not be assessed as they were established outside of the review period. 11. The Virgin Islands has been assigned a rating 1 for each of the 10 essential elements as well as an overall rating. The ratings for the essential elements are based on the analysis in the text of the report, taking into account the Phase 1 determinations and any recommendations made in respect of the Virgin Islands legal and regulatory framework and the effectiveness of its exchange of information in practice. On this basis, the Virgin Islands has been assigned the following ratings: Compliant for elements A.3, B.2, C.1, C.2, C.3 and C.4, Partially Compliant for element A.1 and NonCompliant for elements A.2, B.1 and C.5. In view of the ratings for each of the essential elements taken in their entirety, the overall rating for the Virgin Islands is Non-Compliant. 12. A follow up report on the steps undertaken by the Virgin Islands to answer the recommendations made in this report should be provided to the PRG within twelve months after the adoption of this report.
1. This report reflects the legal and regulatory framework as at the date indicated on page 1 of this publication. Any material changes to the circumstances affecting the ratings may be included in Annex 1 to this report.
INTRODUCTION 11
Introduction
Information and methodology used for the peer review of the Virgin Islands
13. The peer review process of the Virgin Islands has been undertaken across three reports: the 2011 Phase 1 Report, a Supplementary Phase 1 Report, and a Phase 2 Report. The assessments of the legal and regulatory framework of the Virgin Islands as well as its practical implementation and effectiveness were based on the international standards of transparency and exchange of information as described in the Global Forums Terms of Reference, and were prepared using the Methodology for Peer Reviews and Non-Member Reviews. 14. The 2011 Phase 1 Report was based on the laws, regulations and exchange of information mechanisms in force or effect as at May 2011, other information, explanations and materials supplied by the Virgin Islands, and information supplied by partner jurisdictions. The Supplementary Phase 1 Report, which followed the 2011 Phase 1 15. Report of the Virgin Islands, was prepared pursuant to paragraph 58 of the Global Forums Methodology and was adopted by the Global Forum in October 2011. The supplementary report was based on information available to the assessment team including the laws, regulations, and exchange of information arrangements in force or effect as at August 2011 and information supplied by the Virgin Islands. 16. The Phase 2 assessment is based on the laws, regulations, and exchange of information mechanisms in force or in effect as at May 2013, the Virgin Islands responses to the Phase 2 questionnaire, supplementary questions and other materials supplied by the Virgin Islands, information provided by exchange of information partners, and explanations provided by the Virgin Islands during the on-site visit that took place from 10-12 December 2012 in Road Town, Tortola, Virgin Islands. During the on-site visit, the assessment team met with officials and representatives of the Ministry of Finance (including the International Tax Authority and the Inland Revenue Department), the British Virgin Islands Financial Services Commission (including the Registry of Corporate Affairs), the Attorney Generals Chambers and the BVI Association of Compliance Officers (see Annex 4).
12 INTRODUCTION
17. The following analysis reflects the integrated 2011 Phase 1, supplementary Phase 1 and Phase 2 assessments of the legal and regulatory framework of the Virgin Islands in effect as at May 2013, and the practical implementation and effectiveness of this framework in the three-year review period of 1 July 2009 to 30 June 2012. 18. The Terms of Reference break down the standards of transparency and exchange of information into 10 essential elements and 31 enumerated aspects under three broad categories: (A) availability of information; (B) access to information; and (C) exchanging information. This review assesses the Virgin Islands legal and regulatory framework and the implementation and effectiveness of this framework against these elements and each of the enumerated aspects. In respect of each essential element a determination is made regarding the Virgin Islands legal and regulatory framework that either: (i) the element is in place, (ii) the element is in place but certain aspects of the legal implementation of the element need improvement, or (iii) the element is not in place. These determinations are accompanied by recommendations for improvement where relevant. In addition, to reflect the Phase 2 component, recommendations are made concerning the Virgin Islands practical application of each of the essential elements and a rating of either: (i) compliant, (ii) largely compliant, (iii) partially compliant, or (iv) non-compliant is assigned to each element. An overall rating is also assigned to reflect the Virgin Islands overall level of compliance with the standards. 19. The assessments in respect of the 2011 Phase 1 Report as well as the Supplementary Phase 1 Report were conducted by a team which consisted of two expert assessors and a representative of the Global Forum Secretariat: Mr. Richard Green, States of Guernsey Income Tax; Mr. Olivier Vallaeys, Ministry of Economy, Finance and Industry of France; and Mr. Mikkel Thunnissen from the Global Forum Secretariat. For the assessment in respect of the Supplementary Phase 1 Report, Mr. Olivier Vallaeys was no longer available. The assessment team examined the legal and regulatory framework for transparency and exchange of information and relevant exchange of information mechanisms in the Virgin Islands. The Phase 2 assessment was conducted by an assessment team which 20. consisted of two expert assessors and two representatives of the Global Forum Secretariat: Mr. Robert Gray, States of Guernsey Income Tax; Mr. Jean-Marc Seignez, Ministry of Economy and Finance of France; and Mr. Francesco Positano and Mr. Mikkel Thunnissen from the Global Forum Secretariat. The assessment team assessed the practical implementation and effectiveness of the legal and regulatory framework for transparency and exchange of information and relevant EOI arrangements in the Virgin Islands.
INTRODUCTION 13
21. The ratings assigned in this report were adopted by the Global Forum in November 2013 as part of a comparative exercise designed to ensure the consistency of the results. An expert team of assessors was selected to propose ratings for a representative subset of 50 jurisdictions. Consequently, the assessment teams that carried out the Phase 1 and Phase 2 reviews were not involved in the assignment of ratings. These ratings have been compared with the ratings assigned to other jurisdictions for each of the essential elements to ensure a consistent and comprehensive approach. The assignment of ratings was also conducted at a different time from those reviews, and the circumstances may have changed in the meantime. Readers should consult Annex 1 for information on changes that have occurred.
14 INTRODUCTION
25. The Virgin Islands is a common law jurisdiction which derives its law from English common law and Virgin Islands statutes, including Ordersin-Council made by the United Kingdom and extended to the Virgin Islands.
3. 4.
The data in this paragraph is drawn from statistics of the Financial Services Commission (FSC) in the Virgin Islands (www.bvifsc.vg). The data in this paragraph is drawn from statistics of the United Nations Conference on Trade and Development (UNCTAD), available on http://unctadstat.unctad.org. The data are based on the following definition of the term foreign direct investment (FDI): an investment involving a long-term relationship and reflecting a lasting interest in and control by a resident entity in one economy (foreign direct investor or parent enterprise) of an enterprise resident in a different economy (FDI enterprise or affiliate enterprise or foreign affiliate). Such investment involves both the initial transaction between the two entities and all subsequent transactions between them and among foreign affiliates.
INTRODUCTION 15
the Virgin Islands, are only allowed to do so if licensed by the Financial Services Commission (FSC). These regulated businesses are: Company management business: the formation of companies in the Virgin Islands, providing registered agent and registered office services, providing directors or officers and providing nominee shareholders. Licenses are granted either under the Company Management Act or the Banks and Trust Companies Act. Trust business: acting as a professional trustee, protector or administrator of a trust or settlement; or managing or administering any trust or settlement. Licenses are granted under the Banks and Trust Companies Act. Banking business: accepting deposits of money and the employment of such deposits (e.g. by giving loans or making investments) for the account and the risk of the person accepting such deposits. Licenses are granted under the Banks and Trust Companies Act. Insurance business: undertaking liability under a contract of insurance to indemnify or compensate a person in respect of loss or damage, including life insurance business and reinsurance business. Licenses are granted under the Insurance Act. Financing business: providing credit (either as a business or in the course of another business) or leasing property to a resident in the Virgin Islands. Licenses are granted under the Financing and Money Services Act. Money services business: money transmission services, cheque cashing services, currency exchange services, and the issuance, sale or redemption of money orders or travellers cheques. Licenses are granted under the Financing and Money Services Act. Investment business: dealing in investments or arranging such deals, managing investments, providing investment advice, providing custodial or administration services with respect to investments and operating an investment exchange. Licenses are granted under the Securities and Investment Business Act.
30. The FSC is also the regulatory body which monitors all financial services businesses and has a wide range of enforcement powers in its regulatory toolkit including the power to impose fines or suspend or revoke licenses. Some monitoring tasks are shared with the Financial Investigation Agency. The Virgin Islands is transparent in providing the names of licensees on the website of the FSC (www.bvifsc.vg).
16 INTRODUCTION
31. Most of the regulatory rules in the Virgin Islands have been either introduced or substantially amended in the last decade. One of the most important changes has been the introduction of the BVI Business Companies Act in 2004. Before, the Virgin Islands had separate regimes for companies doing business in the Virgin Islands and International Business Companies, which were subject to a separate offshore regime and were only allowed to do business from within the Virgin Islands. The BVI Business Companies Act abolished the distinction between local and offshore companies and introduced a regime which was designed to meet international standards. Re-registration of all companies under the BVI Business Companies Act was completed in 2009.
INTRODUCTION 17
Recent developments
35. In 2012, the Virgin Islands made a number of changes to its legal and practical framework to increase transparency and further comply with the international standard on transparency and exchange of information for tax purposes. Since 1 January 2012, with the entry into force of the Mutual Legal Assistance (Tax Matters) (Automatic Exchange Information) Order 2011, the Virgin Islands has exchanged information automatically with European Union Members States within the framework of the EU Savings Directive (2003/48/EC). 36. With effect from 10 May 2012, the Anti-Money Laundering and Terrorist Financing Code of Practice (CoP) was amended to extend the obligation on trust service providers to obtain identity information on all the beneficiaries of trusts in relation to trusts presenting a normal level of risk, whereas previously this obligation was limited to trusts presenting a high level of risk. The Business Companies Act was amended in July 2012 to require the registered agent to keep updated identity information on the owners of bearer shares and on the custodian holding these shares. Finally, amendments to the Partnership Act and the Mutual Legal Assistance Act were passed by the National Assembly in November 2012. These legislative changes established that the accounting records of companies and limited partnerships must be kept for at least five years. These amendments also introduced the obligation on these entities to keep underlying documentation. 37. With respect to the practical organisation of tax information exchange, the International Tax Authority was established within the Ministry of Finance to deal with cross border tax matters with effect from 9 July 2012. The International Tax Authority has replaced the Commissioner of Inland Revenue as the authority designated to perform the function of Competent Authority for the exchange of information.
A. Availability of Information
Overview
38. Effective exchange of information requires the availability of reliable information. In particular, it requires information on the identity of owners and other stakeholders as well as information on the transactions carried out by entities and other organisational structures. Such information may be kept for tax, regulatory, commercial or other reasons. If such information is not kept or the information is not maintained for a reasonable period of time, a jurisdictions competent authority may not be able to obtain and provide it when requested. This section of the report describes and assesses the Virgin Islands legal and regulatory framework on availability of information. It also assesses the implementation and effectiveness of this framework. 39. Availability of ownership and identity information in respect of companies and limited partnerships is ensured under the Virgin Islands legal and regulatory framework, as both the entities and their registered agent are required to keep full ownership information. In practice, the Virgin Islands competent authority has always asked the registered agent to provide the ownership information for the purposes of exchanging it with another jurisdiction. Peer input indicated that this information has not been exchanged in all cases. These cases include situations where the registered agent should have had the information available. The results of inspections by the FSC also indicate that in some cases the registered agent has not kept sufficient CDD information and/or the register of members. Although in general appropriate enforcement action is taken by the FSC against non-compliant registered agents, it is recommended that the Virgin Islands continues to use all mechanisms at its disposal to ensure that ownership information in respect of companies is available in practice. 40. In respect of trusts, information on the identity of the beneficiaries is required to be kept for AML/CFT purposes where the trust presents a normal or a higher level of risk in terms of money laundering or terrorist financing. Where the trust service provider considers the trust as posing a
the service provider. These entities are generally not fully covered by the inspection process of the FSC and therefore no regular monitoring in respect of the obligation to keep accounting records takes place, which may affect the availability of such information for the purposes of exchange of information. It is therefore recommended that the Virgin Islands sufficiently exercise their monitoring and enforcement powers to support the legal requirements which ensure the availability of accounting information.
46. A company limited by shares can be designated as a Segregated Portfolio Company (SPC) or a Restricted Purposes Company (RPC). An SPC is a company which may create one or more segregated portfolios for the purpose of segregating the assets and liabilities of the company held within a certain segregated portfolio from the assets and liabilities of the company not held within a segregated portfolio or within any other segregated portfolio (s. 138(1)
days (s. 93 and 94 BCA). If the registered agent does not inform the company, it commits an offence and may be liable upon summary conviction to a fine of USD 10 000. In practice, the company is always informed, as the registered agent must provide the FSC with a copy of the notice of intention to resign it has given to the company (see Form R702 of the FSC). Circumstances under which a registered agent may resign include a failure to obtain customer due diligence information, non-payment of the fees by the company and the loss of contact with the company. During 2010-12, registered agents sent more than 5 000 intentions of resignation to the FSC. In around 3 500 of these cases, the company had not appointed a new registered agent within 90 days. 52. If the company has not appointed a new registered agent within 90 days of the agents intention to resign, the company commits an offence and is liable to a fine of USD 10 000 (s. 94(5) BCA). From the date of resignation, a company is given another 30 days in practice to appoint another registered agent or it will be struck off the register. Compliance has increased in this respect; the number of companies that were struck off the register after resignation of the registered agent and failure to appoint another registered agent, fell from 1 294 in 2010, to 754 in 2011 and to 143 in 2012. 53. Registered agents are licensed and regulated by the FSC under the Company Management Act and the Banks and Trust Companies Act. These Acts set out licensing requirements for persons carrying on company management business. Company management is defined as: (a) the formation of Virgin Islands companies, including the continuation of companies as Virgin Islands companies; (b) the provision of registered agent services; (c) the provision of registered office services; (d) the provision of directors or officers for companies, whether such companies are Virgin Islands companies or companies incorporated or registered in a jurisdiction outside the Virgin Islands; and (e) the provision of nominee shareholders in companies, whether such companies are Virgin Islands companies or companies incorporated or registered in a jurisdiction outside the Virgin Islands. 54. The FSC can issue a license to carry on company management business to any person, taking into account the detailed requirements set out in the Regulatory Code. Persons who carry on company management business without being licensed are liable upon summary conviction to a fine not exceeding USD 50 000 or to imprisonment for a term not exceeding two years, or both.
58. The company is required to keep the register of members or a copy thereof at the office of its registered agent. If a copy is kept at the office of the registered agent, the company shall notify the registered agent within 15 days, in writing, of any change. Failing to comply with these register-keeping obligations results in the company being liable on summary conviction to a fine of USD 10 000 (all s. 96 BCA). The FSC monitors that ownership information on companies is avail59. able through off- and on-site inspections on the registered agents (see below under Ownership information held by the registered agent).
Tax law
67. The Income Tax Ordinance (ITO) under which the Virgin Islands used to levy an income tax from both individuals and companies, is still in force but the rate of income tax is now 0%. Taxpayers still must register with the Commissioner when they become liable to tax, i.e. when they derive income from the Virgin Islands (s. 4A and s. 5 ITO). Under the Payroll Taxes Act (PTA) all employers having employees who render services wholly or mainly in the Virgin Islands, and all self-employed persons, also must register with the Commissioner (s. 3 and s. 3A PTA). Both the ITO and the PTA do not impose any obligations on providing ownership information to the authorities upon registration or keeping such information. The Inland Revenue Department keeps a database of the companies which are liable to tax in the Virgin Islands. As at December 2012, the total number of companies registered under the ITO was 2 035 and the number of companies registered under the PTA was 3 425.
Regulated companies
68. Companies are only allowed to carry on company management business, trust business, banking business, insurance business, financing business, money services business or investment business if licensed by the FSC. As part of the license application process, section 10 Regulatory Code requires a company to fill out an approved form (F100) which contains a list of all shareholders and controllers, which includes the beneficial owners. Any subsequent ownership change resulting in any person holding five or ten percent (depending on the kind of business) or more in the licensed company or resulting in a change of the ownership interest of a person already holding five or ten percent or more in the licensed company, is subject to prior approval by the FSC. In addition, licensees must notify the FSC of any other change of ownership within 14 days of that change (s. 19A of Schedule 3 Regulatory Code). Ownership information is therefore available to the FSC.
Foreign companies
69. Foreign companies are only allowed to carry on business in the Virgin Islands if they are registered in the Register of Foreign Companies (s. 186 BCA). There is no general definition of carrying on business in the BCA, but it includes a foreign company having a place of business in the Virgin Islands. As at December 2012, 37 foreign companies were registered. Upon registration various information has to be provided, including evidence of its incorporation, but this does not include ownership information. Like all companies, foreign companies which carry on business in the Virgin Islands are required to have a registered agent in the Virgin Islands or are otherwise liable upon summary conviction to a fine of USD 10 000 (s. 189 BCA).
with the specific information that is set out in section 25(2) CoP, which only mentions information on certain not all beneficial owners. The more specific provision may well be what registered agents take as their guideline. Although a system is in place to identify (certain) owners of foreign companies, the lack of clarity and consistency of the CoP on this matter may lead registered agents to apply the rules unevenly. However, it is clear that at a minimum all individuals with a controlling interest of at least ten percent in the foreign company must be identified. Further ownership information on these companies should be available in the jurisdiction where they were incorporated. 74. It should be noted that no CDD has to be carried out where the foreign company is regulated in another jurisdiction where it performs activities similar to activities which are regulated in the Virgin Islands (s. 6 AMLR). In this case, the requirements to maintain ownership information will generally depend on the law of the jurisdiction in which the company is incorporated. Considering the low number of foreign companies registered in the Virgin Islands (37) and the fact that in most cases some ownership information will be available through the CDD measures carried out by the registered agent, the instances where no full ownership information on foreign companies is available are not expected to significantly impede the effective exchange of information. 75. The inspections carried out by the Compliance Inspections Unit of the FSC also cover the availability of ownership information on foreign companies. No specific issues have been raised by peers, or encountered by the Virgin Islands in practice, with respect to foreign companies in the three-year review period.
Nominees
76. Acting (or providing for another person to act) as a nominee shareholder for another person is considered a relevant business under the AMLR and CoP (s. 2(1) AMLR). Consequently, persons acting as a nominee shareholder are required to carry out CDD and identify the persons for whom they act as a legal owner in accordance with section 19 CoP. Documentation in respect of the CDD carried out must be maintained in the Virgin Islands by the nominee for at least five years after the end of its business relationship with the person for whom they act (s. 8 AMLR and s. 39 Regulatory Code). 77. The Virgin Islands indicated that most licensed service providers do in practice provide services as a nominee shareholder. Therefore, the FSCs checklist includes the question whether the service provider provides such services. During its on-site inspections, the Compliance Inspections Unit of the FSC then verifies whether, for the relevant companies, the service provider has the identity details of the actual beneficial owner on file. In the
Mutual funds
79. For the operation of mutual funds in the Virgin Islands additional registration and regulatory rules apply. A fund is not allowed to carry on business as a mutual fund in or from within the Virgin Islands unless it is registered with or recognised by the FSC under the Securities and Investment Business Act (SIBA). Contravention of this rule could lead to a penalty of USD 40 000 on summary conviction or USD 75 000 on indictment (s. 4(1) and Schedule 7 SIBA). Four categories of mutual funds can be registered in the Virgin Islands: Public funds: funds that offer their investment shares to the general public. Professional funds: funds the shares of which are made available only to professional investors. The initial investment of each investor shall not be less than USD 100 000. Private funds: funds which are not authorised to have more than fifty investors or invitations to subscribe for the fund interests are made on a private basis only. Recognised foreign funds: this can be any type of fund.
80. As at December 2012, there were 1 590 professional funds, 577 private funds and 151 public funds active in the Virgin Islands. The assets under their management are estimated to represent a value of several hundred billion USD. 5 81. Public funds can only be Virgin Islands companies or unit trusts governed by the Virgin Islands trust law and with a trustee based in the Virgin Islands (s. 45 SIBA). No such restrictions apply with respect to other mutual funds, which can take the form of companies, trusts, partnerships or any other form. All mutual funds must have an authorised representative, which is either a Virgin Islands company, a partnership formed under the Virgin Islands laws or an individual residing in the Virgin Islands (s. 64 and 65 SIBA). Such authorised representative must be certified by the FSC and acts as the main intermediary between the FSC and the mutual fund he/she represents. Public funds, professional funds and private funds are also required to have a fund administrator (s. 7 and 16 of the Mutual Fund Regulations), which must be a licensee under the SIBA in case he operates from within the Virgin Islands (s. 4 and Schedule 2 SIBA). 82. Depending on the legal form of the mutual fund, it will be subject to the same requirements to keep ownership information as other companies, partnerships or trusts, including having a registered agent in the case of a company or limited partnership. This would ensure availability of ownership information in respect of mutual funds in all cases where it is ensured for other entities with the same legal form. The Virgin Islands authorities indicated that in practice more than 90% of the mutual funds are established as a company. As explained above, in these cases both the fund itself and the registered agent are required to keep a register of members. 83. The SIBA was enacted in 2010, and it has been complemented by the Mutual Fund Regulations and the Public Funds Code. All references to the former Mutual Funds Act are now to be read as reference to the SIBA, following the general rule of interpretation laid down in section 30(1) Interpretation Act. This means that, regardless of their form, mutual funds themselves and their authorised representatives are subject to the AML/CFT legislation, which obliges them to identify and verify the owners of their customers. 84. On-site inspections by the FSC in respect of mutual funds are carried out on the fund administrators, but may also include the manager or any other entity which provides services to the fund and is licensed by the FSC (such as
5. No complete statistics are available. For 2009, 55% of the assets representing USD 238 billion were reported; for 2010, 60% of the assets representing USD 288 billion were reported; for 2011, 62% of the assets representing USD 271 billion were reported.
recognised custodian, the details of the new owner must also be submitted by the custodian to the registered agent (s. 75(2) BCA). 97. Changes of ownership of a bearer share held by an authorised custodian should also be submitted to the registered agent of the company. This obligation is not as such contained in the BCA, but it is included in Aide Memoire #3 of May 2004 (paragraph 2.3(b)(ii)). This Aide Memoire was issued by the FSC to establish detailed criteria for authorised custodians, which are also considered during inspections by the FSC and non-compliance may eventually lead to revocation of the authorisation. The obligations in the BCA and the Aide Memoire should ensure that the registered agent can in practice comply with the obligation to have identity information on the holders of bearer shares available. It is noted that where a custodian would not cooperate, the registered agent should resign as it cannot meet its legal obligations, and report the non-cooperation to the FSC which can take enforcement measures vis--vis the custodian. 98. From 2010-12, the Compliance Inspections Unit of the FSC conducted on-site inspections on seven BVI authorised custodians and four on-site inspections of a foreign authorised custodian located in Panama. During these on-site inspections, the Compliance Inspections Unit verifies whether the custodian keeps information on the owners of the bearer shares and whether transfers have been carried out in accordance with the law. According to the Compliance Inspections Unit, the authorised custodians kept all of the information required, but they were not always in compliance with the obligation to carry out a reconciliation process (verifying whether the information is still up-to-date) at least twice a year. Recognised custodians are not subject to inspections by the FSC, as these must be an investment exchange or a clearing organisation carrying on business in a jurisdiction that is a member of the Financial Action Task Force. 99. The on-site inspections by the Compliance Inspections Unit on registered agents now include a verification of compliance with the obligation to keep information on the owners of bearer shares where their client is a company that has issued bearer shares. However, this obligation was only introduced in July 2012, and it is therefore recommended that the Virgin Islands closely monitors whether registered agents keep this information, in particular where they have to obtain the information from a foreign authorised custodian. 100. In the three-year period under review, the Virgin Islands received two requests concerning ownership information where the requesting jurisdiction indicated that bearer shares were involved. However, in both cases the Virgin Islands obtained information that the relevant companies had not issued bearer shares and were legally not able to do so. This information as well as the information on the owners of the shares was provided in both cases.
Conclusion
101. Virgin Islands companies may issue bearer shares. These are immobilised through a custodial arrangement, meaning that the custodian will have the physical share in its possession and is also required to keep the identity information on the owner of the bearer share. Although the custodian may be located outside the Virgin Islands, and therefore outside of its territorial jurisdiction, a new provision was introduced in July 2012 to also require the registered agent of the company that has issued bearer shares to keep full ownership information on the owners of the bearer shares. This means that in all cases full ownership information on the owners of bearer shares must be kept by a person within the territorial jurisdiction of the Virgin Islands. In practice, obligations on the custodians to report ownership information to the registered agent facilitate compliance by the registered agents. Both the authorised custodians and the registered agents are subject to the monitoring and enforcement program of the FSC. The obligations placed on registered agents to maintain full ownership information have only come into effect in July 2012. It is therefore recommended that the Virgin Islands closely monitors whether the registered agents keep full ownership information on the owners of bearer shares.
Limited partnerships
103. Limited partnerships are not allowed to carry on banking business, insurance business or trust business (s. 50(1) Partnership Act). Furthermore, international limited partnerships shall not carry on business with persons resident in the Virgin Islands or own an interest in real property in the Virgin Islands. All 547 limited partnerships registered as at December 2012 in the Virgin Islands were registered as international limited partnerships. 104. All limited partnerships are required to have a registered office and a registered agent in the Virgin Islands (s. 82 and 84 Partnership Act). A general partner that wilfully contravenes these requirements is liable on summary conviction to a penalty of USD 100 for each day the contravention
continues (s. 85 Partnership Act). Registered agents of limited partnerships are licensed and regulated by the FSC under the Company Management Act and the Banks and Trust Companies Act in the same way as registered agents for companies (see section on companies above). In the case of a local limited partnership, one of the general partners can also be the registered agent (s. 84 Partnership Act).
General partnerships
109. General partnerships carrying on business in the Virgin Islands follow the common law principle whereby all information in respect of ownership is detailed in the partnership agreement/deed subscribed to and agreed upon by all partners. Section 30 of the Partnership Act further states that partners are bound to render true accounts of all things affecting the partnership to any partner, agent or representative. It is unclear whether this obligation includes a requirement for identity information in respect of the partners to be retained. However, it is noted that a general partnership is essentially the sum of its partners and the English common law rule on partnerships applies where all partners are equally and severally obligated and liable to the partnership. 110. Under the PTA, all partners in a partnership which is carrying on business in the Virgin Islands are deemed employees of that partnership if they render services to the partnership and participate in the income or profits of the partnership (s. 6(a) PTA). General partners will normally fall in this category. This means that the general partnership, as the deemed employer of the general partners under the PTA, must register with the Commissioner and tax has to be paid on the (deemed) remuneration paid to the general partners. The annual tax return that has to be submitted by the general partnership requires all (deemed) employees to be identified and the nature of their employment has to be indicated. This means that it will generally be clear from this form who the general partners of the general partnership are, and the tax authorities will have this information available in their administration. As at April 2013, there were approximately 200 general partnerships registered with the Commissioner of Inland Revenue.
Revenue Department. The general partners of a limited partnership must keep a register of all partners and their contributions to the partnership, while the partners in a general partnership are generally identified in the annual tax return they have to submit. In addition, the registered agent of a limited partnership must verify the identity of each partner and keep this information. All limited partnerships are required to have a registered office and a 112. registered agent in the Virgin Islands, the details of which are available with the Registrar. The inspections carried out by the Compliance Inspections Unit of the FSC on registered agents includes the taking of samples of information kept on their clients that are partnerships. The checklist used by the FSC includes the partnership agreement and the details of all partners. In the three-year review period, the Virgin Islands has received no EOI 113. requests for information relating to the identity of partners in a partnership.
professional, must keep records of the identity of any other trustees and of the settlors (s. 84(21) and s. 84A(28) Trustee Act). 121. Companies that carry on trust business are required to obtain a license to do so. Other persons can act as a trustee, administrator or protector of a trust without being licensed. However, any person professionally engaging in trust business is subject to AML/CFT legislation (s. 2(1) AMLR and s. 2(1) CoP). Section 19(3)(a) CoP prescribes that in case the trust service provider wishes to enter into a business relationship with respect to a trust, CDD rules apply. This requires the trust service provider to obtain the following information (s. 28 CoP): (a) the name of the trust; (b) the date and country of establishment of the trust; (c) where there is an agent acting for the trust, the name and address of the agent; (d) the nature and purpose of the trust; (e) identifying information in relation to any person appointed as trustee, settlor or protector of the trust. 122. Until May 2012, section 28(2) CoP provided that the trust service provider was only required to identify the beneficiaries with a vested right in the trust where it considered that the trust presented a higher level of risk in terms of money laundering or financing of terrorism. With effect from 10 May 2012, section 28(2) CoP was amended and now requires the trust service provider to obtain and verify the identities of all the beneficiaries with a vested right in the trust at the time of or before distribution of any trust property or income in relation to trusts presenting a normal or a higher level of risk. It is clear that this amendment results in an increase in the number of cases for which the trust service provider must identify the beneficiaries of the trust, as it now includes all cases where it considers that the trust presents a normal level of risk in addition to the cases where it would present a higher level of risk. 123. However, the CoP clearly distinguishes another category of risk, namely low risk (see, for example, sections 19(6) and 21(2) CoP). Customers are sometimes regarded as low risk in practice. While section 28(2) CoP does not specifically place an obligation on service providers to obtain identity information on the beneficiaries in this situation, the Virgin Islands authorities stated that, in practice, service providers are subject to the requirement to identify the beneficiaries in all cases. This is because normal risk should be read to include low risk in the context of section 28(2) CoP, as only two categories are mentioned (normal risk and higher level of risk) and every trust should fall in one of these two categories. Although it is not
(d) classes of beneficiaries, charitable objects and related matters; (e) whether the trust or trustee is subject to regulation and, if so, details of the regulator. 126. A person who fails to comply with the CDD rules is liable on summary conviction to a fine not exceeding USD 25 000 or to imprisonment for a term not exceeding two years, or both (s. 28(3) CoP). Documentation in respect of the CDD carried out must be maintained in the Virgin Islands by the registered agent for at least five years (s. 8 AMLR and s. 45(1)(a) CoP).
136. In addition to the penalties related to a specific contravention, the FSC has a wide range of enforcement powers in its regulatory toolkit in case of a contravention of the Financial Services Commission Act, the Regulatory Code and any other financial services legislation, which includes the BCA, the Partnership Act and the CoP. These powers include applying to the Court for a protection order (s. 39 Financial Services Commission Act), suspension or revocation of a license (s. 38 Financial Services Commission Act) and the imposition of administrative penalties ranging from USD 100 and USD 5 000 (s. 2(2) Financial Services (Administrative Penalties) Regulations). Administrative penalties may also be imposed under the CoP separately, and they have been increased in August 2012 to a range of USD 50 000 to USD 75 000 (s. 57(1) and Schedule 4 CoP).
Practice
138. All Virgin Islands companies and limited partnerships must have a registered office and a registered agent in the Virgin Islands. The registered agent must keep ownership information under AML/CFT legislation, and the BCA and Partnership Act require that the register of members or partners is kept by the registered agent or at the registered office provider. In respect of trusts, all professional trust service providers are subject to the obligations under the AML/CFT legislation and must therefore keep identity information on the trust(s) they administer. Together, these requirements should ensure that ownership and identity information in respect of all Virgin Islands companies and limited partnerships, as well as in respect of trusts administered in the Virgin Islands, is available with a company and/or trust service provider. All of these service providers are generally subject to licensing and supervision by the FSC. 139. The FSC has approximately 145 officers across divisions including the Compliance Inspections Unit, Legal and Enforcement, Operations, Finance, IT, Investment Business, Banking and Fiduciary Services, Insurance, Insolvency, Policy, and the Registry of Corporate Affairs. All FSC staff are given annual training in AML/CFT, training on the inspection process as well as other financial services matters. The Compliance Inspections Unit consists of 6 dedicated personnel and is responsible for the coordination of the on-site inspections of licensed service providers. An on-site inspection team, generally consisting of 3-5 persons, is headed by an officer of this unit and further consists of other FSC officers from the relevant areas of expertise, depending on which type of service provider is inspected. 140. The Compliance Inspections Unit uses a risk-based approach to determine which service providers should be subject to inspection, taking into account, among other factors, the number of clients, the nature of the business of the clients and previous non-compliance. In addition, the continuing off-site monitoring carried out by each regulatory division within the
FSC may trigger an on-site inspection. In the period 2010-12, the Compliance Inspections Unit conducted between 40-60 on-site inspections a year. In 2012 the FSC focused on the registered agents, and conducted on-site inspections on 25-30 registered agents, including nine out of the top ten registered agents in terms of number of clients (together, the top ten registered agents are responsible for approximately 70% of the company registrations). 141. During on-site inspections, the Compliance Inspections Unit takes samples of ownership and identity information of the clients kept by the service provider. Determination of the sample size is based on criteria such as type of business and size of organisation. For example the on-site inspection would include reviewing information kept on end-user clients, trust clients, clients who utilise bearer shares and clients to whom nominee director and shareholder services are offered. For each one of these types/categories of clients separate sample sizes of files are reviewed. Depending on the outcome of the risk assessment, the sample size of clients/files reviewed could range from 30 to 200. In addition, where irregularities are found during the inspection, more files will be checked. 142. Different checklists are used depending on the type of entity or arrangement. These checklists are updated regularly, for example when relevant legislation changes. Following the inspection, the Compliance Inspections Unit reports to the Enforcement Committee, which decides on the appropriate action to be taken. In most cases, the service provider is first given two to six weeks to rectify the non-compliance. This is found to be sufficient in the majority of the cases. Where the service provider does not rectify the noncompliance within the prescribed time limit, the Enforcement Committee may take further enforcement actions. 143. The statistics on enforcement actions as kept by the FSC do not distinguish between the types of non-compliance. It is therefore not possible to determine whether the enforcement actions taken relate to failure to comply with ownership and identity information keeping requirements. However, the FSC has indicated that failures to comply with these requirements have been identified, in particular with respect to registered agents. The combined statistics on enforcement actions taken by the FSC show that in the years 2010-12 on average 180 cases a year were brought before the Enforcement Committee, leading to a total of 334 enforcement actions ranging from imposing an administrative penalty (approximately 100 such penalties have been applied) to the revocation of a license (there have been more than 15 such cases, almost all in 2012). The total amount of penalties levied amounts to USD 216 450. 144. It is noted that there is no active enforcement of the obligation on companies and partnerships themselves to keep a register of members or ownership information on the partners. However, the system in the Virgin
The Virgin Islands should closely monitor whether registered agents keep full ownership information on the owners of bearer shares where their client is a company that has issued such shares.
145. A condition for exchange of information for tax purposes to be effective, is that reliable information, foreseeably relevant to the tax requirements of a requesting jurisdiction is available, or can be made available, in a timely
manner. This requires clear rules regarding the maintenance of accounting records.
Licensed persons
149. As mentioned in the Introduction, persons carrying on company management business, trust business, banking business, insurance business, financing business, money services business or investment business are required to obtain a license from the FSC to do so. In regulating these businesses, additional requirements to keep accounting records apply. The regulating laws 9 all contain a provision requiring the licensee to keep financial records that: (a) are sufficient to show and explain its transactions; (b) will, at any time, enable its financial position to be determined with reasonable accuracy; (c) will enable them to prepare financial statements; and (d) will enable their financial statements to be audited. 150. Licensees are required to keep their financial records in the Virgin Islands, either at their (principal) office or at a place of which the FSC is notified in writing. Foreign licensees (if applicable) shall at least keep accounting records in the Virgin Islands in respect of the business it undertakes in the Virgin Islands and shall notify the FSC in writing where the other financial records are kept. Licensees failing to comply with the record keeping rules commit an offence. 10 Under the Banks and Trust Companies Act and the Company Management Act, licensees are then liable upon summary conviction to a fine of USD 25 000 or to imprisonment for a term not exceeding one year, or to both. Under the Insurance Act and the Financing and Money
9. 10. Banks and Trust Companies Act (s. 17), Company Management Act (s. 17), Insurance Act (s. 52), Financing and Money Services Act (s. 19) and Securities and Investment Business Act (s. 17 and s. 59). Except persons carrying on investment business other than mutual funds.
Services Act, licensees are then liable upon summary conviction to a fine of either USD 40 000 (corporate body) or USD 30 000 (individual). Mutual funds failing to comply with the record keeping rules are liable upon summary conviction to a fine of USD 20 000 (corporate body) or USD 15 000 (individual). In addition, all licensees are subject to the wide range of enforcement powers of the FSC as described under A.1.6.
AML/CFT legislation
157. The AML/CFT legislation requires records of transactions to be kept from which investigating authorities will be able to compile an audit trail for suspected money laundering (s. 9 AMLR). This may require that underlying documentation in relation to those transactions should be kept. However, as mentioned before, there is no obligation for any person to conduct all its transactions through a service provider. In addition, the requirements under the AML/CFT legislation only pertain to transactions, which does not cover underlying documentation reflecting details of all assets and liabilities of a person.
Licensed persons
159. Under the various laws governing licensees, it is required that they keep all financial records for a period of at least five years (six years under the Insurance Act) after the completion of the transaction to which they relate. The same penalties for non-compliance apply 11 as described in paragraph 147 above. 160. A retention period of at least five years for records kept by licensees (except licensees licensed under the Securities and Investment Business Act) is also required under the Regulatory Code (s. 39). Under this Code (s. 38(1)(b)) licensees also have to keep records of transactions undertaken for their customers. Under the Financial Services (Administrative Penalties) Regulations the FSC can impose an administrative penalty between USD 500 and USD 5 000 in case a person fails to comply with this requirement.
11. Except for mutual funds.
AML/CFT legislation
161. Section 10 AMLR and section 45 CoP require that records pertaining to a transaction are kept for a period of at least five years from the date the business relationship was ended. Failing to comply with this obligation results in the person being liable upon summary conviction to a fine not exceeding USD 25 000 or to imprisonment for a term not exceeding two years, or both.
sufficiently exercises its monitoring and enforcement powers to support the legal requirements which ensure the availability of accounting information. 166. It is noted that in the course of 2012 new provisions were introduced in the Virgin Islands legal framework requiring companies and limited partnerships to keep their accounting records and underlying documentation at the office of their registered agent (in the case of companies) or at their registered office (in the case of limited partnerships) in the Virgin Islands. However, the records may also be kept at another place, within or outside the Virgin Islands, in which case the company or the general partners must notify the registered agent of the place where the records are being kept. This new rule should facilitate locating the accounting records when needed, and in case they are being kept in the Virgin Islands the records may be included in the inspections carried out by the FSC on the registered agents. It is recommended that the Virgin Islands monitor that these new obligations ensure the availability of accounting records. During the three-year review period, more than 50 requests received 167. by the Virgin Islands included an enquiry for accounting information. The types of information requested included financial statements and underlying documentation (payment documents, invoices, correspondence, agreements). In most cases, the information was not or only partially exchanged with the requesting jurisdiction. The Virgin Islands authorities explained that this was caused by the practice, at that time, of the competent authority to only approach the service provider (i.e. the registered agent) to access accounting information (see B.1). As the registered agent was only obliged to keep certain accounting information in relation to AML/CFT legislation, the competent authority did not obtain all of the requested accounting information in most cases. As the information that was exchanged was also not verified before transmitting it to the requesting jurisdiction (see C.5.2), many incomplete responses were sent in respect of accounting information. 168. The Virgin Islands authorities explained that since July 2012 (with the establishment of a new competent authority, the International Tax Authority (ITA)) this practice has changed. The ITA now serves Notices to Produce Information in respect of accounting information to both the registered agent of the entity and the entity itself. Because of the deficiencies in the procedures within the Virgin Islands competent authority in the threeyear review period, it is difficult to assess whether accounting information was in fact available. With the exception of the records to be kept by licensed service providers, there are no clear indications that accounting information was or was not available, or that monitoring and enforcement on the existing obligations on the relevant entities to keep accounting records was being carried out. With the new procedures in place, the Virgin Islands should closely monitor whether accounting information is in practice available.
Phase 2 rating Non-Compliant. Factors underlying Recommendations Accounting information was not provided to requesting jurisdictions in many cases. It is not clear whether this was due to the fact that the information was unavailable. However, it is the case that, except for records to be kept by entities that are subject to licensing with the FSC, no system of monitoring of compliance with accounting record keeping requirements is in place, which may cause the legal obligations to keep accounting records to be difficult to enforce. In addition, a number of accounting record keeping obligations have only been introduced recently and are therefore untested in practice. Recommendations The Virgin Islands should ensure that its monitoring and enforcement powers are sufficiently exercised in practice to support the legal requirements which ensure the availability of accounting information in all cases.
169. Persons are only allowed to carry on banking business in or from within the Virgin Islands if they hold a valid license for that purpose issued by the FSC under the Banks and Trust Companies Act. There are currently 7 banks operating in or from within the Virgin Islands under a license. Five of these banks are branches of overseas banks, while there is also a local retail bank and a bank operating under a Restricted Class I Banking License conducting inter-company banking. The total assets held in these banks are around USD 2.5 billion and their liabilities are around USD 2 billion.
not considered to be an undue delay nor did other peers report undue delays. Banking information was generally provided in all 40 cases where it was requested, except in the cases described under C.1.9. The delays experienced in some cases were mostly related to the information being kept overseas, which may cause monitoring of the record keeping obligations and enforcement for non-compliance to be more difficult. The Virgin Islands should continue to monitor that no undue delays occur in the provision of banking information when such information is kept overseas.
Determination and factors underlying recommendations
Phase 1 determination The element is in place. Phase 2 rating Compliant.
B. Access to Information
Overview
177. A variety of information may be needed in respect of the administration and enforcement of relevant tax laws and jurisdictions should have the authority to access all such information. This includes information held by banks and other financial institutions as well as information concerning the ownership of companies or the identity of interest holders in other persons or entities. This section of the report examines whether the Virgin Islands legal and regulatory framework gives to its competent authority access powers that cover all relevant persons and information, and whether the rights and safeguards that are in place would be compatible with effective exchange of information. Since July 2011, the Virgin Islands competent authority (the Financial 178. Secretary or a person or authority designated by him) has a broad power to obtain any information held by any person believed to be in possession or control of that information, without any further conditions. Previously, access to information other than ownership information (and most notably accounting information) was not guaranteed. 179. The access powers of the competent authority are exercised by the issue of a notice to provide the information, and penalties are in place in case of non-compliance. In addition, a search warrant can be obtained from a Magistrate, both in the case of non-compliance and in cases where the competent authority is of the opinion that the information is endangered. The Virgin Islands competent authority has so far not applied any penalties to persons that were under an obligation to produce the information but failed to do so, nor did it seek to obtain a search warrant. This includes a number of cases where the person who was served the Notice was under a legal obligation to have the requested information available. It is therefore recommended that the Virgin Islands ensures that compulsory powers are applied where appropriate. 180. The powers of the competent authority do not apply to items subject to legal privilege. The information covered by legal privilege in the Virgin Islands is in accordance with the standards. There are also no other secrecy
183. The Financial Secretary or a person or authority designated by him is the competent authority of the Virgin Islands. Until July 2012, the execution of requests for information was delegated to the Commissioner of Inland Revenue. Since 9 July 2012, the day-to-day responsibility for exchange of
information lies with the newly established International Tax Authority (ITA), which reports directly to the Financial Secretary. The powers to obtain and provide information that is the subject of a request under an exchange of information arrangement are derived from the Mutual Legal Assistance (Tax Matters) Act (MLAA). Initially enacted to establish the competent authoritys powers under the TIEA between the Virgin Islands and the United States, it provides for the same powers under any similar agreement as has been provided for by Order of the Minister of Finance. So far, such Order has been provided for in respect of each TIEA that is in force.
In practice, where information would be required from other government authorities this is expected to be provided without the need to serve a notice on them. No such situations have occurred in the three-year review period. 191. In respect of the FSC, which is the regulatory body that monitors all financial services businesses, section 33C(1)(b) of the Financial Services Commission Act (FSCA) states that the FSC has a duty to cooperate with a competent authority acting pursuant to an enactment. Although section 33C(3) FSCA provides for an exception in matters of taxation, this exception does not apply in cases where information is lawfully required by a competent authority acting pursuant to an enactment. A competent authority would include the Virgin Islands competent authority for exchange of tax information purposes. 192. In July 2011, section 32 FSCA was amended to extend the powers of the FSC to obtain information for cases where this is required to ensure compliance with a request from a competent authority acting pursuant to an enactment. This means that if the Virgin Islands competent authority issued a notice for information under the MLAA to the FSC, the FSC can also use its own powers to obtain that information if the FSC itself does not hold the information. The powers of the FSC include the issuance of a notice to any person reasonably believed to have the information and applying for a search warrant in certain circumstances. It should be noted that information in the Virgin Islands is generally available from sources other than the FSC and that sole reliance on the FSC in respect of information that is foreseeably relevant for tax purposes is unlikely to occur. In practice, the Virgin Islands competent authority has so far not needed to request the FSC to use its own access powers to gather information for EOI purposes.
as at that time the information was always asked from a service provider. The competent authority has always granted the request for an extension; the maximum extension granted has been two months. In no case during the three-year review period have these extensions caused information to be exchanged to a requesting jurisdiction beyond 180 days, and only in a few of these cases information was exchanged after 90 days or more.
Use of information gathering measures absent domestic tax interest (ToR B.1.3)
201. The information gathering powers under the MLAA are not subject to the Virgin Islands requiring such information for its own tax purposes. It is noted that under the PTA (s. 17I) and the ITO (s. 58A), the Commissioner of Inland Revenue has additional powers, including compulsory powers to require any person to furnish information for the purposes of administering these taxes.
206. The procedure to obtain a search warrant seems to be such that it is automatically issued where the competent authority gives a certificate that a search warrant is necessary. Although the competent authority has so far never applied for a search warrant, the Virgin Islands authorities confirmed that the Magistrate is expected to issue a search warrant upon the submission of a certificate by the competent authority. The certificate would be prepared by the Virgin Islands competent authority and subsequently vetted by the Attorney General who would approach the Magistrates Court on behalf of the competent authority. In combination with the penalties which apply for failing to comply with a notice to provide information, the Virgin Islands has sufficiently strong compulsory powers to compel the production of information.
The Virgin Islands should ensure that compulsory powers are applied where appropriate in cases where information is not produced.
214. There is no requirement in the Virgin Islands domestic legislation that the taxpayer under investigation or examination must be notified of a request. The regular procedure to obtain information is described under B.1 and includes the issue of a notice to provide the information to the person reasonably believed to have the information.
May 2013, these cases have now been re-opened and the Virgin Islands is in the process of obtaining and exchanging the information (see C.1.9 for a more detailed description of this issue). 219. An exception to the issue of a notice to provide the information is provided for in cases where the competent authority is of the opinion that if a notice would be issued, it would not be complied with or the documents or information to which the notice relates may be removed, tampered with or destroyed (s. 6(1)(b) MLAA). In such cases, the competent authority may apply to the Magistrate for a search warrant under the same procedures as described under B.1.4 in this report. In practice, the Virgin Islands competent authority has not yet felt the need to apply for a search warrant instead of issuing a notice.
Determination and factors underlying recommendations
Phase 1 determination The element is in place. Phase 2 rating Compliant.
C. Exchanging Information
Overview
220. Jurisdictions generally cannot exchange information for tax purposes unless they have a legal basis or mechanism for doing so. In the Virgin Islands, the legal authority to exchange information derives from its exchange of information agreements, as soon as an Order by the Minister of Finance has been provided for which gives effect to the MLAA for the specified agreement. This section of the report examines whether the Virgin Islands has a network of information exchange that would allow it to achieve effective exchange of information in practice. 221. The Virgin Islands has concluded 20 TIEAs since May 2009, and has more than 10 agreements under negotiation. A list of all signed agreements (24 in total) can be found in Annex 2, and cover a range of relevant partners. The TIEAs contain all provisions which allow the Virgin Islands to exchange all foreseeably relevant information. Currently, 15 of the TIEAs are in force, and the Virgin Islands has recently taken the final step for almost all of the other TIEAs for them to enter into force. Under most of these TIEAs, requests have been received by the Virgin Islands. Since January 2012, the Virgin Islands also automatically exchanges information with European Union countries pursuant to the EU Savings Directive, which is implemented in domestic law by the Mutual Legal Assistance (Tax Matters) (Automatic Exchange Information) Order 2011. 222. The confidentiality of information exchanged with the Virgin Islands is protected by obligations implemented in the agreements, supplemented by domestic legislation which provides for an oath of secrecy taken and observed by all public officers and specific provisions to protect confidentiality of information contained in a request for information received by the Virgin Islands. This domestic legislation is supported by penalties for non-compliance. These penalties are highlighted in the Notice to Produce Information as well. In practice, information related to EOI requests is only accessible by staff of the Virgin Islands competent authority.
227. The Virgin Islands is signatory to TIEAs with 23 jurisdictions (see Annex 2). Also, a DTC applies between the Virgin Islands and Switzerland, which is an extension of a former DTC (1954) between the United Kingdom and Switzerland. This DTC contains a number of restrictions, of which the most important ones are as follows. The DTC limits the exchange of information to information as is necessary for carrying out the provisions of the Convention, as opposed to for the administration of the domestic tax laws. In addition, it does not contain a provision corresponding with Article 26(5)
of the OECD Model Tax Convention regarding bank information. Although the Virgin Islands is able to exchange bank information on a reciprocal basis in the absence of such provision, Switzerland is not. Because of these restrictions, the DTC with Switzerland does not allow the Virgin Islands to exchange information in accordance with the international standard. The current DTC with Switzerland is not further considered in this section, which will focus on whether the Virgin Islands TIEAs allow it to effectively exchange information. 228. The responsibility for negotiating international tax agreements lies with the Ministry of Finance, and more specifically with the International Tax Authority (ITA). The ITA sometimes uses the services of an external consultant, and reports directly to the Financial Secretary. The Virgin Islands concludes agreements within the scope of the letter of entrustment from the United Kingdom. 229. The treaty network of the Virgin Islands has expanded over the past years. Typically, the Virgin Islands is approached by other jurisdictions to negotiate agreements. Before negotiations begin, the ITA notifies relevant stakeholders, such as the financial services industry, of a jurisdictions interest in negotiating a treaty with the Virgin Islands. This may lead to input from these stakeholders, but the decision making and negotiation processes are solely the responsibility of the Government. The Virgin Islands currently has a draft model TIEA which is shared with the interested jurisdiction for their comments and review. As this model TIEA generally follows the wording of the OECD Model TIEA, these negotiations usually take place via email correspondence. 230. Certain practical arrangements regarding the exchange of information are agreed between the Virgin Islands and the majority of its TIEA partners in a Protocol or Memorandum of Understanding to these TIEAs. Commonly, such arrangements cover cost issues, in which language the communication should be conducted and in which form the EOI requests should be provided. 231. As the Virgin Islands does not levy any income tax, to date the ITA has not sent any requests itself. The Virgin Islands authorities anticipate incoming requests to increase in coming years with an increased number of bilateral relationships coming into force.
of the request in relation to whether the information relates directly to the taxpayer, and so the interpretation of the language contained in most of the TIEAs has not represented an obstacle to exchange of information. 235. As explained under section C.5.2 below, the ITA uses a checklist to verify that all information to establish the foreseeable relevance of the request has been provided by the requesting jurisdiction. In case the information is not sufficient for the ITA to determine the foreseeable relevance of the request, the ITA will contact the requesting jurisdiction to ensure that this information is provided. A template request form was recently sent to all treaty partners of the Virgin Islands to facilitate this process. The checklist has also only been developed recently and has not been in use during the three-year review period. The Virgin Islands indicated that in the three-year review period, it has never asked the requesting jurisdiction for clarifications regarding the foreseeable relevance, mainly because before the establishment of the ITA in July 2012 the organisational process did not provide for a verification of the foreseeable relevance of an incoming request. In addition, the Virgin Islands has not declined any request for information on the basis that the requested information was not foreseeably relevant, which is confirmed by feedback received from peers.
Exchange of information in both civil and criminal tax matters (ToR C.1.6)
244. Information exchange may be requested both for tax administration purposes and for tax prosecution purposes. The international standard is not limited to information exchange in criminal tax matters but extends to
information requested for tax administration purposes (also referred to as civil tax matters). 245. All of the TIEAs concluded by the Virgin Islands cover both civil and criminal tax matters. In practice, during the three year review period, 21 requests related to criminal tax matters and 102 requests related to civil tax matters. The Virgin Islands has provided information in response to EOI requests for both civil and criminal tax matters. An issue that arose during the three-year review period regarding the application period of TIEAs to requests concerning criminal tax matters is described under section C.1.9 below. It is noted that this issue has been resolved and that the Virgin Islands is currently in the process of obtaining and exchanging the requested information.
255. A number of peers have commented that the Virgin Islands had not provided information following requests that related to a period before the entry into force of the TIEA under which the requests were made. The requests concerned criminal tax matters, and a divergence of interpretation regarding the entry into force provision in the concerned TIEAs arose between these peers and the Virgin Islands. The following positions were taken: the peers argued that the entry into force provision in the TIEAs obliges the Virgin Islands to exchange information with respect to criminal tax matters in all cases, whether they relate to a taxable period after or before the entry into force of the TIEA. The Virgin Islands position was that such an application of the entry into force provision was not clearly provided for in the relevant TIEAs. 256. The international standard provides for exchange of past information which relates to a taxable period following the effective date, 13 but the Terms of Reference do not require that information must be provided that relates to a taxable period before the entry into force of an information exchange agreement. Accordingly, what applies in a particular case depends on the wording of the relevant provisions of the agreement. Nevertheless, the Virgin Islands has made an amendment to the MLAA in May 2013 to enable it to obtain and exchange information in criminal tax matters that relates to a period before the entry into force of the relevant exchange of information agreement. By passing this amendment, the Virgin Islands has resolved the divergence of interpretation as described in the previous paragraph. 257. With respect to the requests affected by the divergence of interpretation, the Virgin Islands competent authority has confirmed that it already has exchanged information where possible, and that it is in the process of obtaining further information and providing this information to the respective TIEA partners.
Determination and factors underlying recommendations
Phase 1 determination The element is in place. Phase 2 rating Compliant.
13.
Information that came into existence before the entry into force of the agreement may be relevant for taxable periods that post-date the coming into force of the agreement and this information should be exchanged in accordance with the international standard.
258. Ultimately, the international standard requires that jurisdictions exchange information with all relevant partners, meaning those partners who are interested in entering into an information exchange arrangement. Agreements cannot be concluded only with counterparties without economic significance. If it appears that a jurisdiction is refusing to enter into agreements or negotiations with partners, in particular ones that have a reasonable expectation of requiring information from that jurisdiction in order to properly administer and enforce its tax laws it may indicate a lack of commitment to implement the standards. 259. As at 17 May 2013, the Virgin Islands has signed 23 TIEAs to the standard. The Virgin Islands first TIEA was signed in 2002 (in force since 2006) with one of its main trading partners, the United States. The treaty partners of the Virgin Islands include: 3 of its main trading partners; 15 OECD member economies; 7 jurisdictions which are members of the G20; and 21 Global Forum member jurisdictions.
260. The Virgin Islands authority to negotiate and conclude agreements is based on the constitutional mandate of the United Kingdom. The current mandate is laid down in a letter of entrustment and it comprises the negotiation of TIEAs with members of the G20, OECD and EU, as well as all jurisdictions which are on the OECDs white list of jurisdictions which have substantially implemented the international standard. There is also a possibility to grant ad hoc entrustments where another jurisdiction has requested to negotiate an agreement with the Virgin Islands. 261. Comments were sought from the jurisdictions participating in the Global Forum in the course of the preparation of this report, and no jurisdiction advised the assessment team that the Virgin Islands had refused to negotiate or conclude an EOI agreement with it. 262. In summary, the Virgin Islands network of information exchange agreements covers all relevant partners.
C.3. Confidentiality
The jurisdictions mechanisms for exchange of information should have adequate provisions to ensure the confidentiality of information received.
desk policy, which ensures that at the end of each day of work the desks are free and clear from all information pertaining to a request for information. The Notice to Produce Information issued by the ITA explicitly states 271. that the particulars and all matters relating to the Notice are to be treated as confidential in accordance with section 9 of the MLAA. The receiver may not disclose the fact of the receipt of the Notice, or any of the particulars required or documents produced or information supplied to any other person, except its attorney-at-law, without the express written consent of the ITA. The attorney-at-law is also bound by the provisions established in section 9 of the MLAA. In practice, no breach of confidentiality in relation to the unlawful disclosure of information concerning a request for assistance has occurred. 272. The Notice to Produce Information is always hand-delivered where the person who is served the notice is physically present in the Virgin Islands. In other cases, the notice is sent to the person(s) believed to be in possession or control of the information via courier. The receiver is asked to deliver the information to the ITA office. When neither of the two representatives of the ITA is in office, the post received is kept by the Inland Revenue Department, with whom the ITA shares its office space, until they return. The Virgin Islands has indicated that no one in the Inland Revenue Department is authorised to open the post for the ITA. The ITA will have a reserved mail box when it moves to the new offices. 273. In the three-year review period, before the establishment of the ITA, no template notice existed and details from the EOI request may have been disclosed to the perceived information holder which were not necessary for him/her to locate the information. However, in the absence of a template notice and/or written policy, the adherence to the international standard in respect of confidentiality towards the holder of the information could not be assessed. No peers have reported any practical difficulties in this respect. 274. Since July 2012, the information disclosed in the Notice is basic, as described under B.2 above. It is noted that the template schedule to the Notice contains a space for the identity of the person or entity specified in the EOI request. Although this information may in some cases form part of the minimum information that needs to be disclosed in order to enable the person who is served the notice to locate and produce the information sought, it is important to note that the amount of information that needs to be provided may vary depending on the circumstances of each case. The ITA has indicated that the identity of the person or entity specified in the EOI request, as well as any other information contained in the EOI request, is now only included in the Notice where necessary, which is determined on a case-by-case basis. The current template Notice was only introduced in July 2012 and its practical consequences could therefore not be fully assessed. The Virgin Islands should ensure that no unnecessary information is disclosed in the Notices.
DTC with Switzerland does not cover commercial secrets and includes a reservation for the contracting parties sovereignty and security in addition to their public policy. 278. Most of the Virgin Islands TIEAs 14 contain an addition to Article 7(6) of the OECD Model TIEA. The Virgin Islands TIEAs do not only allow for declining a request for information where the information would be used to administer or enforce a provision of the requesting jurisdictions tax law which discriminates against a national of the requested party, but also where a provision of the tax law discriminates against a resident of the requested party if it is in the same circumstances as a resident of the requesting party. This means that no obligation to exchange information would exist, for example, where the requesting party intends to use this information to administer a withholding tax on a Virgin Islands resident, while such withholding tax does not exist for residents of the requesting party. For international tax purposes, tax rules that differ only on the basis of residency are universally accepted (see for example Article 24(1) of the OECD Model Tax Convention and its Commentary, and the Commentary on Article 7(6) of the OECD Model TIEA). 279. The reason for introducing this provision is to make it absolutely clear that persons holding a certificate of residence of the Virgin Islands are covered by this provision, as they are also covered by the definition of national in the Virgin Islands TIEAs. The Virgin Islands confirmed that it has no intention to apply the provision differently from the international standard. Nevertheless, the provision has the potential to impede the effective exchange of information in certain cases (see the example above) and it is recommended that the Virgin Islands clarifies its position in any future agreements. The Virgin Islands indicated that they explain the issue during the negotiations. In practice, the Virgin Islands has never declined an information exchange request because the information would be used to administer or enforce a provision of the requesting jurisdictions tax law which discriminates against a resident of the requested party. 280. An information request can be declined where the requested information would reveal confidential communications protected by attorney-client privilege. However, limitations generally apply to this privilege. This is reflected in Article 7(3) of the OECD Model TIEA, which can be found in many of the Virgin Islands TIEAs. Three of the Virgin Islands TIEAs (with France, Germany and Portugal) only contain a provision stating that there is no obligation to provide items or information subject to legal privilege,
14. Only the TIEAs with Australia, China (Peoples Rep.), the Czech Republic, France, Guernsey, Ireland, New Zealand, Portugal and the United States do not contain this addition.
in practice, nor have they been raised by any of the Virgin Islands exchange of information partners.
Determination and factors underlying recommendations
Phase 1 determination The element is in place. Phase 2 rating Compliant.
7 87.5 38 72 27 55 48 91 35 2 10 52 98 39 80 -
* A request is regarded as a single request irrespective of the number of subjects involved for which information is requested. ** The time periods in this table are counted from the date of receipt of the request to the date on which the final response was issued.
289. In cases where requests had not been completely fulfilled within 90 days, this was due to various reasons, including the holder of the information requesting more time within which to access or collate the relevant information. The statistics show requests as answered which were, in fact, only partially answered as a result of the processes used by the Virgin Islands in the three-year review period, i.e. only requesting information from registered agents and not always vetting the obtained information before exchanging it
(see sections B.1 and C.5.2). The effect of the new procedures on the completeness and timeliness of the responses could not be assessed. Although no exact figures are available, it has been clear from the input from peers that a significant proportion of the requests were answered unsatisfactorily, in the sense that the responses were incomplete and no explanations were given as to why this was the case. In this respect it should be noted that where the requesting jurisdiction provided feedback that the information received was not satisfactory, a dialogue took place between the Virgin Islands and the requesting jurisdiction which generally led to further information being obtained and exchanged. It is nevertheless recommended that the Virgin Islands ensure that its responses to EOI requests are complete and made in a timely manner. 290. During the three-year review period, it was not standard practice to send an acknowledgment of receipt to the requesting jurisdiction. Moreover, where the information could not be provided within 90 days, a status update was generally only sent when solicited by the requesting jurisdiction. While during the three-year review period an excel spreadsheet was used to manage the requests, the ITA now uses a database system which provides for automatic alerts when an update is due. According to the Virgin Islands authorities, it is now standard practice of the ITA to send an acknowledgment of receipt to the requesting jurisdiction and to provide systematic updates when the information cannot be provided within 90 days. As this system has been in place since July 2012, which is outside the scope of the review period preventing its effect from being properly assessed, it is recommended that the Virgin Islands monitor that its competent authority sends status updates to the requesting jurisdiction in case a response takes more than 90 days.
Organisational process
292. The current (since July 2012) organisational process, templates used and guidelines to be followed to obtain and provide information following a request from an information exchange partner is described in the Operations Manual developed by the ITA. The ITA has also developed a checklist for processing incoming requests, as well as standard Notices to Produce Information which are used in the execution of requests. These tools, put in place since the formation of the ITA, are based on the provisions of the agreements signed by the Virgin Islands and the MLAA. 293. When an information request is received, the authorised officer within the ITA checks whether each request is based on a TIEA that is in force and that the request is sent from the competent authority of the requesting jurisdiction. Subsequently, the request is given a unique reference number and is then logged onto a database which is used to enable the ITA to monitor the progress and timelines of all incoming requests. At the same time, an acknowledgment of receipt is sent to the requesting competent authority by email (using only the reference number of the requesting jurisdiction) and courier. The request and any attachments to it are scanned and stored in electronic format on a secure separate server which is only accessible by the ITA personnel. 294. After the initial check, the authorised officer, together with the director, examines whether the required information conforms with the provisions of the MLAA as well as of the treaty forming the basis of the request. If it does, the director of the ITA validates the request, Where there are doubts whether a request is valid, the case will be referred to the Attorney-General for a final determination. Where the request is found not to be in conformity with the relevant treaty and the MLAA, the ITA will notify the requesting competent authority, outlining the information the requesting competent authority must provide in order for the ITA to process their request. 295. Once it is established that the request is valid, the authorised officer of the ITA decides how to best access the information. The information relevant to the exchange of information is generally not held by the tax authorities, nor by the FSC. Nevertheless, the Registrar of Companies within the FSC maintains a database which contains the details as supplied at registration (see section A1.1 Ownership and Identity Information), such as the name and registered address of the entity and of the service provider. The authorised officer of the ITA will usually commence its investigation by examining the public database maintained by the Registrar to determine the person to whom the Notification to Produce Information should be sent. The Virgin Islands authorities indicated that a Memorandum of Understanding will be signed soon between the ITA and the FSC to formalise their cooperation throughout the process of gathering the information.
296. Where the Notice to Produce Information is sent to the person who is also the subject of the investigation or examination in the requesting jurisdiction, the ITA will notify the competent authority of the requesting jurisdiction in order to verify whether it objects to the notice being sent to this person. 297. The notices are hand-delivered where the person who is served the notice is located in the Virgin Islands. The ITA utilises delivery receipts which indicate the name of the person receiving the Notice, and date and time of delivery. In other cases, the notice is sent by courier. A copy of the delivery receipt or the receipt of the courier is placed on the manual file for the request held in the ITA offices. The person or entity served with the notice is generally given ten working days to comply. An extension to this period may be requested. In practice, extensions up to two months have been granted, where this was considered to be justified. 298. The requested information is usually delivered to the ITA by hand where the person who has received the Notice is located within the Virgin Islands. If the person is located outside the Virgin Islands, the information is mostly delivered in an encrypted electronic version followed by a hard copy sent by courier. The authorised officer will then check whether all elements requested have been provided. Where the information is insufficient to meet the requirements of the request, the notice to produce information is returned to the entity setting out what additional information is needed. After securing that the information obtained meets the requirements of the request, a cover letter is signed by the director of the ITA and, along with the information produced, is sent via courier to the requesting competent authority. The response is also sent to the competent authority by encrypted email. 299. Every three months, the ITA officer reports to the director of the ITA on the status of the requests. The report should include the number of requests received for the relevant period and a description of the status of the requests, as well as any issues or problems identified in dealing with these requests. The director of the ITA will report to the Financial Secretary on an annual basis.
Resources
303. The ITA is responsible for exchange of information on request and since July 2012 also in relation to the European Savings Directive. In addition. the ITA is directly involved in treaty negotiations. The ITA is currently composed of two full time personnel, i.e. the Director and a Research Analyst, who handle the requests. The work of the ITA is supported by an external consultant, in particular in respect of treaty negotiations. The Virgin Islands has indicated that the current resource levels are at an appropriate level to deal with the information exchange requests received. 304. Nevertheless, the workload is likely to increase significantly in the near future. The statistics show that the number of EOI requests received by the Virgin Islands has rapidly increased over the last three years, growing from 8 requests in 2010 to 52 requests in the first six months of 2012. This trend is caused by a number of TIEAs entering into force in 2010 or 2011, which means that the Virgin Islands EOI partners have been able to request information only for the last two years or less. Another TIEA entered into force in 2012, and others are likely to enter into force in the near future. It is
therefore expected that the number of EOI requests received by the Virgin Islands will increase even more in the future. The workload of the ITA now also includes the responsibility for the automatic exchange of information within the framework of the European Savings Directive. The Virgin Islands has indicated that the recruitment of one Senior Research Analyst is envisaged in view of the increased workload due to the commencement of exchange of information in relation to the European Savings Directive, and that further resources will be allocated to the ITA as required. The Virgin Islands should monitor that the resources allocated to its competent authority remain sufficient to deal with the increasing workload. 305. Training is currently undertaken on the job. The Director of the ITA holds a graduate degree in legislative drafting and is a member of the Virgin Islands Barristers Association. The Research Analyst was assigned to the Virgin Islands competent authority in January 2011 and had previously worked at the Inland Revenue Department for nine years. ITA staff also attend Global Forum and Peer Review Group meetings. 306. Prior to the establishment of the ITA, the Commissioner dealt with exchange of information. She was assisted by an analyst, who carried on the day-to-day tasks of handling a request.
Conclusion
307. The execution of the competent authoritys responsibilities was delegated by the Financial Secretary to the ITA in July 2012. The procedures established by the ITA, which are included in an Operations Manual, appear to be sufficient to handle incoming requests in a timely manner. The resources currently allocated to the ITA may be sufficient to deal with the present workload, but the Virgin Islands should monitor that sufficient resources remain dedicated to its competent authority to deal with the rapidly increasing number of requests. 308. Prior to the establishment of the ITA, the Commissioner for Inland Revenue was the designated competent authority. The organisational process in place at that time was not adequate, resulting in the Virgin Islands exchanging incomplete information. It is therefore recommended that the Virgin Islands ensure that its newly established procedures continue to provide for effective exchange of information. 309. In terms of timeliness, the statistics show that a final response was provided within 90 days in 64% of cases, and within 180 days in 80% of the cases. However, during the three-year review period, it was not standard practice to send a status update where the information could not be provided within 90 days. Such updates were generally only sent when solicited by the requesting jurisdiction. Although the newly established procedures should
Unreasonable, disproportionate or unduly restrictive conditions for exchange for information (ToR C.5.3)
310. There are no specific legal and practical requirements in place which impose restrictive conditions on the Virgin Islands exchange of information practice.
Determination and factors underlying recommendations
Phase 1 determination This element involves issues of practice that are assessed in the Phase 2 review. Accordingly no Phase 1 determination has been made. Phase 2 rating
Non-Compliant.
Factors underlying recommendations During the three-year review period, the Virgin Islands practices in accessing and exchanging information have resulted in sending incomplete responses in a significant proportion of the cases according to the input from peers. The Virgin Islands did not provide status updates where a request could not be answered within 90 days unless requested to do so. The procedures put in place by the new authority competent for exchange of information (the ITA) could not be assessed. Recommendations The Virgin Islands should ensure that the responses it provides to EOI requests are sufficiently complete and provided in a timely manner.
The Virgin Islands should monitor that status updates are provided to the requesting jurisdictions where relevant.
The Virgin Islands should ensure that Prior to the establishment of the ITA, no formal verification as to the content its organisational processes provide for effective exchange of information. of the information transmitted to the requesting jurisdictions was made.
Determination
Recommendations
Jurisdictions should ensure that ownership and identity information for all relevant entities and arrangements is available to their competent authorities (ToR A.1) The element is in place. Phase 2 rating: Partially Compliant. During the three-year review period (1 July 2009 until 30 June 2012), ownership information in respect of the shareholders of companies was not exchanged in some cases, while the person (the registered agent) who was requested to produce the information was required by law to have this information. The obligation on the registered agent of a company that has issued bearer shares to keep full ownership information on the owners of these bearer shares has been recently introduced. The Virgin Islands should ensure that ownership information in respect of companies is available in all cases in practice.
The Virgin Islands should closely monitor whether registered agents keep full ownership information on the owners of bearer shares where their client is a company that has issued such shares.
Determination
Recommendations
Jurisdictions should ensure that reliable accounting records are kept for all relevant entities and arrangements (ToR A.2) The element is in place, but certain aspects of the legal implementation of the element need improvement. There are no consistent obligations for general partnerships and trusts to keep reliable accounting records, including underlying documentation, for a period of at least five years. The requirements on companies and limited partnerships to keep underlying documentation do not specify the type of underlying documentation to be kept, which could result in an uneven application of the obligation to keep underlying documentation. Phase 2 rating: Non-Compliant. Accounting information was not provided to requesting jurisdictions in many cases. It is not clear whether this was due to the fact that the information was unavailable. However, it is the case that, except for records to be kept by entities that are subject to licensing with the FSC, no system of monitoring of compliance with accounting record keeping requirements is in place, which may cause the legal obligations to keep accounting records to be difficult to enforce. In addition, a number of accounting record keeping obligations have only been introduced recently and are therefore untested in practice. The Virgin Islands should ensure that reliable accounting records, including underlying documentation, are required to be kept by general partnerships and trusts for a period of at least five years in all cases. The Virgin Islands should clarify its requirements that underlying documentation must be kept in respect of companies and limited partnerships.
The Virgin Islands should ensure that its monitoring and enforcement powers are sufficiently exercised in practice to support the legal requirements which ensure the availability of accounting information in all cases.
Recommendations
Competent authorities should have the power to obtain and provide information that is the subject of a request under an exchange of information arrangement from any person within their territorial jurisdiction who is in possession or control of such information (irrespective of any legal obligation on such person to maintain the secrecy of the information) (ToR B.1) The element is in place. Phase 2 rating: Non-Compliant. In the three-year review period, the Virgin Islands competent authoritys practice was to serve a Notice to Produce Information only on the registered agent of the company or limited partnership, regardless of whether the registered agent was obliged to keep the information sought. This resulted in the Virgin Islands competent authority not always obtaining all information. The Virgin Islands has not applied any compulsory powers in the three-year review period, even where information that should have been in the possession of the person who was served the Notice to Produce Information was in fact not produced in some cases. The Virgin Islands should ensure that the access powers of its competent authority are used effectively to obtain all information included in an EOI request.
The Virgin Islands should ensure that compulsory powers are applied where appropriate in cases where information is not produced.
The rights and safeguards (e.g. notification, appeal rights) that apply to persons in the requested jurisdiction should be compatible with effective exchange of information (ToR B.2) The element is in place. Phase 2 rating: Compliant.
Determination
Recommendations
Exchange of information mechanisms should allow for effective exchange of information (ToR C.1) The element is in place. Phase 2 rating: Compliant. The jurisdictions network of information exchange mechanisms should cover all relevant partners (ToR C.2) The element is in place. The Virgin Islands should continue to develop its EOI network with all relevant partners.
Phase 2 rating: Compliant. The jurisdictions mechanisms for exchange of information should have adequate provisions to ensure the confidentiality of information received (ToR C.3) The element is in place. Phase 2 rating: Compliant. The exchange of information mechanisms should respect the rights and safeguards of taxpayers and third parties (ToR C.4) The element is in place. Phase 2 rating: Compliant. The jurisdiction should provide information under its network of agreements in a timely manner (ToR C.5) This element involves issues of practice that are assessed in the Phase 2 review. Accordingly no Phase 1 determination has been made.
Factors underlying recommendations During the three-year review period, the Virgin Islands practices in accessing and exchanging information have resulted in sending incomplete responses in a significant proportion of the cases according to the input from peers. The Virgin Islands did not provide status updates where a request could not be answered within 90 days unless requested to do so. The procedures put in place by the new authority competent for exchange of information (the ITA) could not be assessed. Prior to the establishment of the ITA, no formal verification as to the content of the information transmitted to the requesting jurisdictions was made.
Recommendations The Virgin Islands should ensure that the responses it provides to EOI requests are sufficiently complete and provided in a timely manner.
The Virgin Islands should monitor that status updates are provided to the requesting jurisdictions where relevant.
The Virgin Islands should ensure that its organisational processes provide for effective exchange of information.
ANNEXES 105
A1
The Virgin Islands maintains that with no Phase 1 recommendations or gaps identified in the report along with only minor Phase 2 recommendations that a rating of largely compliant is more appropriate.
16. This Annex presents the Jurisdictions response to the review report and shall not be deemed to respresent the Global Forums views.
106 ANNEXES
A2
The Virgin Islands maintains that as identified in Phase 1 the legislation in the Virgin Islands clearly requires the maintenance of accounting and financial records. Additionally, the Phase 2 reports demonstrates that accounting records are provided to treaty partners in relation to a number of requests. Furthermore, there is double counting here where negative issues relevant to other elements have also been accounted for by the expert team. This is unfair and inconsistent with the PRG established process.
B1
The Virgin Islands maintains that this element has already been assessed in element A2 and is tantamount to double counting again. In the absence of a Phase 1 recommendation for element B1 the rating assigned is wholly inaccurate and does not account for the fact that a number of treaty partners expressed that information was exchanged.
C5
Overall the reports conducted by the Global Forum so far have shown that many jurisdictions have had shortcomings identified in relation to timeliness of information. Additionally, like all jurisdictions peers have expressed that they have received high quality of exchange of information with the Virgin Islands which appears to have not been accounted for in the rating assigned. If the situation was taken holistically the Virgin Islands could not have been considered a jurisdiction that does not provide information under its network of agreements, this goes against the tenor of the responses given in peer inputs and statistical evidence that shows responses were provided within 90 days 64%, 180 days 80% etc. The Virgin Islands holds the position as well, even having recognized the reason for the process used in this round of assessment ratings, that the process adopted by the Global Forum in this particular round of assessments is flawed as it is not possible to achieve the fairness, transparency and consistency across reports by the team of expert assessors who were not intimately involved in the assessment of the jurisdiction. The Virgin Islands thus supports the new process that will take place after this first round of assessments is completed. The Virgin Islands however would like to reiterate its support for the principles on which the Global Forum is founded and encourages its treaty partners to continue in supporting each other in their collective efforts to guarantee a level playing field in Global Tax Transparency.
ANNEXES 107
Bilateral agreements
Exchange of information agreements signed by the Virgin Islands as at May 2013, in alphabetical order:
Jurisdiction 1 2 3 4 5 6 7 8 9 10 11 12 13 Aruba Australia China (Peoples Rep.) Curacao 17 Czech Republic Denmark Faroe Islands Finland France Germany Greenland Guernsey Iceland Type of EoI arrangement TIEA TIEA TIEA TIEA TIEA TIEA TIEA TIEA TIEA TIEA TIEA TIEA TIEA Date signed 11 September 2009 27 October 2008 7 December 2009 11 September 2009 13 June 2011 18 May 2009 18 May 2009 18 May 2009 17 June 2009 5 October 2010 18 May 2009 17 April 2013 18 May 2009 28 February 2011 15 April 2010 18 November 2010 4 December 2011 19 December 2012 15 April 2010 19 April 2010 30 December 2010 Date entered into force
17.
Following the dissolution of the Netherlands Antilles on 10 October 2010, two separate jurisdictions were formed (Curacao and Sint Maarten) with the remaining three islands (Bonaire, Sint Eustatius and Saba) joining the Netherlands as special municipalities. The TIEA concluded with the Kingdom of the Netherlands, on behalf of the Netherlands Antilles, will continue to apply to Curacao, Sint Maarten and the Caribbean part of the Netherlands (Bonaire, Sint Eustatius and Saba) and will be administered by Curacao and Sint Maarten for their respective territories and by the Netherlands for Bonaire, Sint Eustatius and Saba.
108 ANNEXES
Type of EoI arrangement TIEA TIEA TIEA TIEA TIEA TIEA TIEA TIEA DTC TIEA TIEA Date entered into force 22 August 2011 28 February 2011
Date signed 9 February 2011 7 December 2009 11 September 2009 13 August 2009 18 May 2009 5 October 2010 11 September 2009 18 May 2009 August 1963 29 October 2008 3 April 2002
15 April 2010
18.
ANNEXES 109
Commercial laws
BVI Business Companies Act, 2004 Segregated Portfolio Companies Regulations, 2005 Partnership Act, 1996 Trustee Ordinance, Cap. 303, as amended by the Trustee (Amendment) Act, 2003 Virgin Islands Special Trust Act, 2003
Regulatory laws
Financial Services Commission Act, 2001 Financial Services Commission (Amendment) Act, 2011 Financial Services (Administrative Penalties) Regulations, 2006 Financial Services (Exemptions) Regulations, 2007 Regulatory Code, 2009 Company Management Act, 1990 Banks and Trust Companies Act, 1990 Insurance Act, 2008 Financing and Money Services Act, 2009 Securities and Investment Business Act, 2010 Public Funds Code, 2010 Mutual Funds Regulations, 2010 Anti-money Laundering Regulations, 2008 Anti-Money Laundering and Terrorist Financing Code of Practice, 2008
110 ANNEXES
ANNEXES 111
OECD PUBLISHING, 2, rue Andr-Pascal, 75775 PARIS CEDEX 16 (23 2013 28 1 P) ISBN 978-92-64-20262-7 No. 60817 2013-01
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