In December, the Virgin Islands implemented a new Base Erosion and Profit Shifting (BEPS) measure, according to Government Information Services.
The Organisation for Economic Co-operation and Development created a BEPS “action plan” in 2013 to combat “tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity.”
The VI is one of 127 jurisdictions pledged to the OECD’s “inclusive framework on BEPS” — states which are committed to implementing the organisation’s anti-profit-shifting measures.
The VI’s most recent measure came in the form of amendments to the Mutual Legal Assistance (Tax Matters) Act, which now require multinational enterprises to file “country-by-country reports” with the territory’s International Tax Authority.
Multinational enterprises made up of multiple corporate entities have new information reporting requirements if the enterprise group had an annual consolidated group revenue of more than €750 million in the preceding financial year.
The rule changes apply to multinational enterprise groups that are related through ownership or control, required to prepare consolidated financial statements, and include two or more enterprises that have tax residency in different jurisdictions, according to a note Harneys published on the changes.
Any entities in such groups that are tax resident in the VI will now be required to register with the International Tax Authority and submit “country-by-country” reports detailing financial information about each other entity in their group, as well as information about what jurisdictions they’re incorporated in.
The ITA can then exchange that information with regulatory authorities in other states.
VI entities that fail to register can be fined up to $100,000, according to the amendments.
However, many companies that are incorporated in the VI are not actually tax resident in the territory, according to industry professionals.
While different countries evaluate tax residency in a wide variety of ways, companies are often considered resident in jurisdictions where they are managed and controlled.
A VI-incorporated company, for example, may be considered tax resident in Japan if it is headquartered in Tokyo. Such a company would not be subject to the VI’s new BEPS reporting requirements.