Even though the government doesn’t expect the planned Global Minimum Tax to adversely affect the Virgin Islands’ financial services sector, discussions are ongoing with the industry in order to ensure the territory is “up to date” as leaders consider the way forward, according to Deputy Premier Lorna Smith.
“The [VI] has always adhered to all of the requirements that [the international standard setters have set], and this is no different,” Ms. Smith said during an Aug. 15 press conference where she was asked about the GMT. “We’re talking about the Global Minimum Tax that came out of the Base Erosion and Profit Shifting initiative — of which [VI] has been a member for many years — and the [VI] has been watching the situation very closely.”
The Base Erosion and Profit Shifting (BEPs) 2.0 Project was approved in 2021 by 141 Organisation for Economic Co-operation and Development member jurisdictions.
The initiative has two pillars, both designed in part to minimise tax avoidance. The first pillar will reallocate some taxable income to market jurisdictions; the second calls for the Global Minimum Tax of 15 percent on large multinational enterprises, according to the OECD.
The Virgin Islands
VI officials have not yet announced whether the territory will sign on to the GMT, but Ms. Smith said at the press conference that “taxes should be paid in the country” in which they’re owed.
She also explained that the territory is a tax-neutral jurisdiction set up in part to help companies and businesses “avoid paying taxes twice.” The GMT, she noted, applies to multinationals with an annual turnover of 750 million euros or more.
“We have a relatively few number of such companies, but it’s a matter that we’re discussing with the industry because we want to be up to date and we want to stay focused,” said Ms. Smith, who is the minister of financial services, labour and trade. “We’re in active discussion with the industry on this matter.”
The VI, she added, is the second-largest hedge fund jurisdiction in the world, and hedge funds are not affected by the global tax.
However, some experts on a recent panel were not as optimistic as Ms. Smith.
“There is a misconception that there are very few [VI] incorporated companies meeting the Pillar Two [GMT] threshold,” Deloitte BVI Tax Advisory Director Kayla Laidlaw said during the “Taxing Times” panel discussion hosted by BVI Finance on July 26.
“However, data reveals that numerous such companies exist and contribute to the [VI’s] economic landscape.”
She added that while the companies may not be well known, they “play a significant role” in the territory’s financial ecosystem.
One size doesn’t fit all
Other speakers at the conference warned that the GMT won’t be a one-size-fits-all solution. Instead, they said, individual countries and territories must take the onus of conducting thorough jurisdictional assessments.
“The consensus among the panellists was clear: The path towards implementing the GMT is fraught with complexity and potential roadblocks,” according to a BVI Finance summary of the panel discussion. “Each country, they argued, will need to assess the consequences of implementing or not implementing the tax on their specific economies, considering local contexts and existing financial infrastructures.”
Asked this week if such a jurisdictional assessment is planned here, Ms. Smith didn’t confirm one way or the other, saying instead that it’s still “early days” and that the government is in “consultation with our private sector.”
Other panellists at the BVI Finance forum included former OECD tax policy director Pascal Saint-Amans, STEP Global Public Policy Committee Chair Geoff Cook, and University of Florida tax professor Mindy Herzfeld, among others.
Ms. Saint Amans said that most OECD member jurisdictions have agreed to the GMT, but others haven’t shown interest.