Two laws the House of Assembly passed in May will strengthen the powers of the International Tax Authority to inspect financial institutions and to interview people associated with Virgin Islands-registered companies, according to the agency.
The legislation aims to ensure compliance with international standards on tax transparency and mutual information exchange in light of inspections the VI is undergoing, the ITA stated in a July 26 press release.
Among other provisions, the International Tax Authority (Amendment) Act 2022 “now requires a legal entity to establish and maintain adequate systems and controls for ensuring compliance” with the law, the release stated.
“As currently drafted, this includes the entity establishing and maintaining a compliance procedures manual. All legal entities are expected to have their manuals established and implemented by the end of 2023.”
Additionally, according to the act, the ITA may now inspect a legal entity’s “premises and business, whether in or outside the territory, including the procedures, systems and controls” — as well as inspecting its assets, making copies of documents, and questioning employees.
The related Mutual Legal Assistance (Tax Matters) (Amendment) Act 2022 also grants additional powers to the ITA to examine entities’ records and interview their representatives.
ITA Director La Toya James explained during a BVI Finance Breakfast forum on July 29 that the amendments are related to the VI’s membership in two groups overseen by the Organisation for Economic Cooperation and Development: the Inclusive Framework on Base Erosion and Profit Sharing, and the Global Forum on Transparency and Exchange of Information for Tax Purposes.
Under the BEPS framework, she said, the ITA is required to monitor the compliance of legal entities under economic substance rules; comply with country-by-country reporting; and monitor financial institutions under the Common Reporting Standard.
To help financial services practitioners and their clients comply, the ITA plans to publish advance guidance on the specific requirements for legal entities, Ms. James said.
“We are working on the updated rules right now,” she said. “They have to go through a process before they can be issued, but we’re working on getting those issues [fixed].”
The guidance will “concern the compliance measures for the on-site inspections that the ITA will be conducting, and the type of document that we expect the relevant entities to have.”
All those guidelines, she said, are “hopefully going to be done before the end of 2022.”
The director advised practitioners to start examining the guidelines as soon as they become available and communicating with their clients about the new rules.
“Your clients should be gathering this information now to provide it to you so that you are able to report to us in the first reporting period in 2023, which is between January to June,” she said.
“We plan to allow clients to come into compliance with the new requirements of the ITA Act, and we will guide you on what is needed for you to meet those requirements.”
Governor John Rankin assented to the laws in July.