On Tuesday, the European Union added 10 more jurisdictions to its expanding blacklist, tripling the number of jurisdictions already listed.
The Virgin Islands was not one of them.
In an attempt to avoid being named a “non-cooperative” tax jurisdiction — a designation that VI industry professionals have said could do considerable reputational harm to the territory — lawmakers fast-tracked “economic substance” legislation late last year.
This week, both Premier Andrew Fahie, who is also the minister of finance, and the financial services community celebrated the EU’s decision, while crediting the economic substance law for keeping the territory off the blacklist.
“This is a significant outcome, but also in some ways it is not surprising,” Mr. Fahie wrote in a press release. “Why? Because the BVI has always been a jurisdiction that keeps pace with international standards. We have also cooperated closely with the EU.”
‘Grey list’
At least for now, the new economic substance law appears to have bought the VI time.
The territory remains on an EU “grey list” along with 33 other jurisdictions, rather than being bumped up to “annex one,” or the blacklist. A total of 25 jurisdictions were cleared from the EU’s list completely after delivering the “reforms and improvements that they promised,” according to a press release from the European Commission.
The VI, the Cayman Islands, Bermuda and the Crown dependencies were put on the grey list in late 2017 and early 2018. They were given until the end of 2018 to alter their tax regimes or face blacklisting.
The Commission warned this week that although the grey-listed jurisdictions have already taken “many positive steps” to comply with requirements under the EU listing process, they should complete that work by the end of 2019 to avoid being blacklisted next year.
What further work is required by the VI and similar jurisdictions, however, was not specifically outlined.
Elise Donovan, CEO of BVI Finance, maintained that the VI has “always had substance,” but will take steps this year to “add further substance.”
“In the meantime, [Mr. Fahie] has already instructed officials to continue positive engagement and discussions with EU officials to ensure additional technical issues are addressed as soon as possible, to ensure our status as a leading compliant financial centre is duly recognised,” she wrote.
In his own statement, Mr. Fahie did not provide further clarity on what will come next, instead echoing Ms. Donovan by saying the VI will “continue positive engagement and discussions” with EU officials.
Other jurisdictions
Though the VI avoided the blacklist this year, other jurisdictions were not so lucky.
Five of the jurisdictions that were included on the EU’s original 2017 blacklist — American Samoa, Guam, Samoa, Trinidad and Tobago, and the United States VI — are still on the list this year. The Commission reported that the group has “taken no commitments” since that time.
Three others from the 2017 list that had been moved to the grey list — Barbados, Marshall Islands and United Arab Emirates — were blacklisted again this year.
And seven more — Aruba, Belize, Bermuda, Dominica, Fiji, Oman and Vanuatu — were moved from the grey to blacklist.
The Commission reported that many jurisdictions implemented substantive measures to fix problems in their tax systems over the past year, and more than 100 “harmful regimes” were eliminated as a result.
“The revised list marks the culmination of a long and intensive process of careful analysis and dialogue with third countries steered by the Commission,” the group wrote. “It confirms the role of the EU as world leader on tax good governance.”
‘Substance’ law
The VI’s new law places “substance” requirements on VI-incorporated companies and partnerships that are not “tax resident” in other jurisdictions.
Such companies are required to demonstrate that their “core income-generating activities” happen on the territory’s shores, and that there are “an adequate number of suitably qualified employees in relation to that activity who are physically present” in the VI, among other requirements.