From 1 January 2018 entered into force updated on the Order, which lists States and territories which don’t exchange tax information. According to the order of the British virgin Islands is excluded from the list, also known as the list of offshore. Although to call this document a list of offshore companies is not quite correct, since it includes not only a large part of offshore jurisdictions, but also other countries that do not share information with our tax.
The exclusion of jurisdiction from the list from a formal point of view has two advantages the companies from the point of view of Russian legislation. First, these may be release, installed to a separate controlled foreign companies (“CFC”), for example, for banks, insurance companies, issuers of bonds and some others. Second, to calculate the profit of a CFC is not required to audit financial statements.
However, from a practical point of view, the de-listing will not allow companies registered in the BVI, take advantage of these benefits, as in both cases the additional condition for their application is the presence of the international agreement on taxation, which is not between the BVI and Russia.
Why is it important?
Although from a formal point of view, Russian taxpayers have not been any changes, we can definitely say that the exception to the BVI from the list of offshore zones is one of the major tax events of the year.
The jurisdiction exists in the list FNS essentially means that the local tax authorities do not respond or do not properly answer the queries of the employees on on the activities of companies or the identity of their beneficiaries. Until recently, this approach of the tax authorities of the BVI was due to two main reasons: the lack of legal grounds for referring of information to the Russian tax authorities and the inability to provide information about the owners of companies in the absence of a Central registry of beneficiaries.
Now to exchange tax information with Russia and other countries there are no obstacles. Russia and the BVI acceded to the Convention on mutual assistance in tax matters, which provides Russian tax authorities the opportunity to submit information requests concerning the activities of companies and their beneficiaries to their colleagues from other jurisdictions, also acceded to the Convention.
This year the BVI entered into force a law providing for the establishment of a register of beneficial owners of companies. In fact the registry is a shared database into which the registration agents who are creating and administering the company must post information about the company and its real beneficiaries. Created several years ago in the BVI the Directorate of international taxation on the basis of data from the registry to respond to requests from the Russian tax authorities.
In conjunction with this information the exception of the BWO from the list on indirectly suggests that the Russian tax authorities successfully send requests to their colleagues in the BVI and receive from them the necessary information. That the tax authorities of the British virgin Islands already meet the requests of our Russian colleagues, reported in the course of public events staff on.
Information from the colleagues from the BVI will allow Russian tax authorities to establish that a Russian tax resident is a controlling person of a CFC, which may result in additional taxes and penalties. Also responses to requests from the BWO will help the Russian tax authorities to prove his position in the Affairs of the actual recipient of the income or in disputes about the tax residency of legal entities.
The automatic exchange of tax information, as well as the willingness of the BVI to respond to requests from Russia provide the Russian tax authorities a wide range of instruments to effectively apply the law on deofshorizatsii.
The owners of so-called passive companies or “companies-wallets” it is worth considering. The Russian tax authorities under automatic exchange can obtain from the jurisdiction in which the company with the BVI opened an account, information about the fact of owning such a company. To gather with information requests in the BVI for more information for additional taxation will be a matter of technique.
British virgin Islands, of course, will remain attractive for big business because of the opportunities for complex corporate transactions or raise funds, as well as a high level of confidence in the judicial system. However, from the point of view of Russian tax authorities, the BVI is not offshore in the classic sense, so as to maintain the confidentiality of the beneficiary, using the corporate shell will be much harder.
Of course, all the steps aimed at increasing transparency was taken by state authorities of the BVI not to help other States to collect taxes on their territory and under pressure from leading economic organizations such as OECD and FATF. In this regard, we cannot exclude that other classic offshore jurisdictions will be the next target and begin to share information about their companies and their beneficiaries with Russia and other jurisdictions.