The British Virgin Islands (BVI) has been a home for modern financial services for more than 15 years...
In response to concerted international pressure, the BVI has adopted an agenda of legislative reform. The territory has therefore avoided the brunt of criticism from the Financial Action Task Force (FATF) and its explicit threat of action against regimes that are 'unco-operative' in the fight against money laundering.
The FATF report, published at the end of June, named 15 countries as being unco-operative, but while the Cayman Islands and the Bahamas were on the list, the BVI was conspicuous by its absence, a result achieved after substantial negotiations between the islands and the FATF.
Changes to IBCs
One of the most important ways the authorities persuaded the FATF of its commitment to fighting crime was promised reform of international business companies (IBCs). Predictably, the proposed changes, among them improving the traceability of bearer shares, has provoked an outcry from some of the trust companies and other financial service providers based there.
IBCs are one of the most appealing and flexible vehicles open to BVI-based investors. They were introduced in 1984 and marked the entry of the BVI into the mainstream offshore world.
IBCs need have neither local bank accounts or assets and there are no restrictions on the use of assets. There are no limitations on the frequency or location of board meetings and shareholder decisions can be taken without a physical meeting, as long as the decision is confirmed electronically or in writing.
Companies only require one director and neither directors nor officers need to be resident in the BVI. Among the new proposals is a requirement that details of company directors be recorded at the company registry.
IBCs can conduct any kind of legitimate business, although additional licensing is needed for financial activities such as trustee services, banking and insurance.
Bearer shares are one of the issues causing the most friction between the BVI and some Western countries. They may be issued and exchanged without restriction, although a registered agent must have details of the exchange.
According to Lisa Penn-Lettsome, deputy director of the BVIs' financial services centre, the main objections come from Western European countries, where the practice of issuing bearer shares is rare. She points out that the criticism of this cash-equivalent vehicle is somewhat overstated when it is so widespread. For example, Nevada allows bearer shares and, of course, bearer bonds can still be found throughout the US.
The BVI is proposing to adopt a form of registration of these shares. This will be done simply by lodging the shares themselves with a registered agent. Penn-Lettsome says: "What we are proposing is immobilising bearer shares. We maintain that there is no need for us to get rid of them."
IBCs are exempt from all local taxes and stamp duty. There is no income tax payable on any payments made by the company to a non-resident. Share transfer, which is unrestricted, does not incur capital gains tax. The BVI does not require the reporting of any foreign income of an IBC.
In a move to strengthen anti-crime legislation, the chief minister of the BVI, Ralph O'Neal, has agreed to amend the Mutual Legal Assistance treaty with the US to allow the exchange of information relating to criminal tax investigations and drop the dual criminality requirement.
Having been in draft form for some time, O'Neal will introduce compulsory powers legislation, which will allow for more effective information exchange between the islands and foreign regulators.
The proposed Information Assistance Act is another move to strengthen international co-operation. This would allow the financial services director to request relevant information from the registered agents.
The bill is designed to provide assistance to foreign regulatory authorities to obtain information about persons in the BVI in relation to any regulatory function. However, this would not apply, for example, to cases where information regarding a criminal investigation or prosecution is required - there are already laws in place that allow information requests through established judicial and administrative channels.
The islands' programme of legislative change is set to continue in the light of the OECD's report from the Committee on Fiscal Affairs, which has pledged to 'identify and eliminate' tax practices it regards as harmful. Some 40 jurisdictions, including the BVI, have recently been named as having predatory low tax regimes. Jurisdictions failing to persuade the Committee otherwise will be blacklisted in July 2001.
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