As financial services professionals meet behind closed doors, trying to make sense of the newly released draft Economic Substance Code, Simon Gray, head of business development and marketing at BVI Finance, has been tasked with keeping their eyes on the horizon.
During an April 17 breakfast forum at BVIF headquarters under the tagline “against all odds,” he pointed to several financial jurisdictions abroad — such as Saudi Arabia and Kazakhstan — that he said could prove useful to the Virgin Is- lands either as new markets or simply as examples to emulate.
Spotting stressed faces in the crowd, Mr. Gray said he looks at the new legislation as a positive development that will actually bring a lot more substance to the economy.
“Overall,” he said, “it’s going to be a good win.”
BVIF has already begun making preparations for an influx of businesspeople that he thinks the legislation will bring. Mr. Gray announced plans for a “concierge facility” designed so that “life will become a lot less challenging and require less patience.”
The initiative, he said, will allow firms, “we hope, to fast- track all elements of government in terms of working here, getting residency, accessing educational resources, and making this as business-friendly as possible.”
The draft code, which was released on Tuesday, was created by the International Tax Authority to provide guidance on the economic substance legislation that the territory fast-tracked last December in order to avoid landing on the EU’s blacklist of “non-cooperative” tax jurisdictions.
That legislation — the Economic Substance (Companies and Limited Part- nerships) Act, 2018 — requires certain legal entities carrying on specified activities to have adequate “substance” in the territory. For the moment, it appears to have worked: Last month, the VI was not among the 10 additional jurisdictions the EU added to its expanding blacklist, tripling the number.
The territory, however, remains on an EU “grey list” along with 33 other jurisdictions. A total of 25 jurisdictions were cleared from the EU’s list completely.
However, amid that good news, the actual details of the legislation — what the affected entities are or what kind of substance they’ll be required to have — have been less clear, and the industry has been anxiously awaiting guidance that then- Premier Dr. Orlando Smith promised in January.
Last month, government announced that it was using external draftsmen to shape the 52-page draft code, which was not officially made public by BVI Finance but was posted on Harneys’ website on Tuesday.
According to the law firm’s statement, the code “contains rules on how the economic substance requirements may be met and guidance on the interpretation of the legislation and the manner in which the ITA will carry out its obligations.”
The code was presented yesterday at a closed-door session for industry professionals, which will be followed by similar sessions in London and Hong Kong. The sessions are presented by Michael Furness, QC, a United Kingdom-based lawyer the VI government hired in October to advise on the legislation, along with economic adviser Steve Johnson.
When those meetings conclude, the final code will be issued in early May “and will incorporate any amendments deemed necessary by the BVI government,” the Harneys statement read. “In our view, amendments made to the draft before final publication next month are likely to be minor.”
Mr. Gray, a 25-year veteran of financial services in both the public and private sectors, also addressed potential negative consequences of the legislation.
“We are going to lose some firms who are under the impression that they might escape to some remote South Pacific island and hunker down,” he said.
Even there, though, they might not be out of reach of the EU.
“There is no escape from this legislation,” he added.
In the meantime, he suggested that it may be time for the VI to look beyond Europe to Saudi Arabia, which, through its Public Investment Fund, is in the midst of seeing a privatisation of public resources not seen since the 1980s.
Already, he said, “Huge law firms are booking all the flights they possibly can” to help set up private entities in the country.
Another area on the rise is Kazakhstan, whose Astana International Financial Centre has made inroads by investing heavily in its young people, in part by sending them abroad to study, according to Mr. Gray.
Beyond that, “We need to start thinking about and anticipating where the Belt and Road is going and getting there first,” he said, referring to the Chinese strategy for infrastructure development in 152 countries.
He also detailed potential opportunities in Singapore, Iran and Abu Dhabi.
“We’re not in a crisis, but we need to innovate,” he said. “We as a small territory can make a very, very big impact.”