The EU Council of Ministers has put the British Virgin Islands (BVI) on the EU’s Annex I list of non-cooperative jurisdictions for tax purposes, on the grounds that it was insufficiently compliant with the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes standard for exchange of information on request.
According to the EU, the list includes countries that 'either have not engaged in a constructive dialogue with the EU on tax governance or have failed to deliver on their commitments to implement the necessary reforms'. The criteria for 'tax good governance' include tax transparency, fair taxation and implementation of international standards designed to prevent tax base erosion and profit shifting. Specifically, the criteria require a jurisdiction to possess at least a 'largely compliant' rating by the Global Forum with respect to both the Common Reporting Standard (CRS) for automatic information exchange and the exchange of information on request (EOIR) standard.
It is the first time the BVI has been included on the list and the jurisdiction's government has responded promptly. It says its Annex I listing came about 'as a formality' because the most recent OECD peer-review rating given to the BVI, in November 2022, reassessed the jurisdiction from 'largely compliant' to 'partially compliant' on tax transparency. A 'largely compliant' rating is one of the criteria that determines the Annex I list.
The BVI government notes that at the beginning of 2023 it brought into effect several legislative changes that should allow it to meet the requirement set by the Global Forum's peer review. These include the BVI Business Companies (Amendment) Act 2022 and associated regulations, which, among other things, abolish the use of bearer shares. These key changes were not recognised in the OECD's November 2022 review.
Accordingly, the BVI government has now asked the Global Forum to grant an supplementary review to recognise these changes. It is hopeful that the result of this review will ensure the jurisdiction's speedy removal from Annex I and reassignment to the Annex II list of jurisdictions that are committed to tax reform.
There are no EU-level sanctions resulting from being moved to Annex I, although if they wish EU Member States can apply various administrative measures against listed jurisdictions. These consist of reinforced monitoring of transactions, increased risk audits for taxpayers, non-deductibility of costs, controlled foreign company rules, withholding tax measures and limitation of the participation exemption on shareholder dividends.
Costa Rica, the Marshall Islands and Russia have also been added to the Annex I list, which now contains 16 jurisdictions. Russia's inclusion, according to the EU, was because new legislation it adopted in 2022 contravened its commitment to address the harmful aspects of a special regime for international holding companies.
Barbados, Jamaica, North Macedonia and Uruguay have been removed from the Annex II list of countries that had given the EU undertakings to improve their tax governance, as they have now complied with these commitments.
Hong Kong and Malaysia were granted an extension of the deadline to complete the reform of their foreign source income exemption regimes as regards capital gains. Qatar was also granted an extension. All three remain on the Annex II list.
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