BVI moves to automatic exchange of information under the EU Savings Tax Directive
The government gazetted, on 12 July 2011, the Mutual Legal Assistance (Tax Matters) (Automatic Exchange Information) Order 2011, which changes the way that the British Virgin Islands complies with the EU Savings Tax Directive (STD).
Under the order, the BVI will transition, as of the tax year commencing 1 January 2011, to the group of countries and territories that comply with the STD through the automatic exchange of information on savings income with tax authorities in EU member states.
The STD is designed to facilitate the exchange of information on individuals' savings income between the tax authorities of EU member states. Under the original legislation, EU member states were required to implement the directive in their offshore dependencies and the UK arranged implementation in its overseas territories and crown dependencies, including the BVI.
The STD and associated legislation provide that institutions, termed "paying agents", must report certain minimum information about savings income to their local tax authorities. The local tax authority in turn discloses the information received from the paying agent to the tax authority where the individual is resident.
The minimum information required for these purposes comprises:
- the identity and residence of the beneficial owner;
- the name and address of the paying agent;
- the account number of the beneficial owner or, where there is none, identification of the debt claim giving rise to the interest; and
- information concerning the interest payment.
In order to appease the governments of certain EU member states which did not initially favour information exchange, the STD permitted paying agents based in certain jurisdictions to impose a withholding tax as an alternative to the minimum information disclosure requirement. Under this option, paying agents would instead withhold a percentage of the income due and deliver this via the local tax authority to the relevant foreign tax authority. The non-EU jurisdictions required to implement the STD were also given this option.
When the directive was originally introduced, the BVI government decided to implement the withholding tax option as a requirement to be imposed by all BVI-based paying agents instead of requiring or permitting information exchange.
The new order provides that from 1 January 2012, BVI-based paying agents will no longer be subject to, or be able to rely on, the withholding tax option as a way of complying with the directive. As such, BVI institutions will be obliged to disclose the minimum information to the BVI Inland Revenue, which in turn will comply with the information exchange policy under the directive.
The order's changes will be most relevant to individuals who are resident in an EU member state and who maintain savings accounts with banks in the BVI.