BVI Signs "UK FATCA" and US FACTA is expected to follow


The British Virgin Islands ("BVI") Government signed an agreement (“UK/BVI IGA”) with the United Kingdom providing for automatic exchange of financial information relating to UK tax payers who hold accounts with BVI financial institutions, in November 2013.  The agreement was effected by an exchange of letters amending the existing Tax Information Exchange Agreement originally signed in 2008. It closely follows the signing of very similar agreements between the UK and the Cayman Islands, Jersey, Guernsey and the Isle of Man.  These arrangements are commonly referred to as “UK FATCA” in recognition of the fact that they owe their origin to the US’s Foreign Account Tax Compliance Act. Indeed, the UK/BVI IGA largely follows the draft Model 1 IGA produced by the US Treasury.
The definition of a financial institution ("FI") that will be subject to the UK/BVI IGA uses the same concepts as in the US FATCA legislation ("US FATCA Regulations") and includes a Custodial Institution, Depository Institution, Investment Entity, or a Specified Insurance Company. In practice, this will cover banks, custodians, nominees, trust companies and trusts, investment funds, administrators, managers and advisers, as well as certain insurance companies.
UK FATCA (unlike its US counterpart) does not provide for a withholding tax to be applied nor is there any registration requirement on foreign financial institutions. The BVI/UK IGA does however provide for due diligence procedures and exemptions from application in a similar format to the US FATCA Regulations. Unless they can avail of one of the exemptions, FIs will be obliged to undertake prescriptive due diligence obligations for identifying reportable accounts under the UK/BVI IGA.   The UK/BVI IGA provides for BVI financial institutions to report information annually to the BVI authority (likely to be the International Tax Authority) on financial accounts that are held by UK individuals or entities controlled by UK persons. The BVI authority will then forward the UK tax payer information to HM Revenue and Customs.  The UK/BVI IGA also contains details of the alternative reporting regime for UK resident non-domiciled individuals.
Now that the UK/BVI IGA has been signed, it will need to be brought into force by the BVI through the introduction of legislation and relevant guidance. Reporting commences in 2016 with respect to 2014 and 2015 and then annually thereafter.  Pre-existing accounts to which very different due diligence requirements exist include all accounts opened up to 30 June 2014.  BVI Financial Institutions opening new accounts after 30 June 2014 will be required to conduct due diligence on the account holder and, in the case of accounts held by entities, on the ultimate beneficial owners in accordance with Annex I of the UK/BVI IGA.

The UK/BVI IGA is at
US/BVI Model 1 IGA to be concluded shortly
The BVI is intending to enter into a Model 1 IGA with the US and it is expected to be concluded very shortly.  It is expected (and highly likely) that the US/BVI IGA will be substantially the same as the Model I IGA entered into between Cayman and the US (a copy of which is available here) BVI Reporting Financial Institutions will be required to identify US accounts and report specified information about those US accounts to the BVI authority. The BVI authority will then pass this information on to the Internal Revenue Service (IRS) on an automatic basis.  As a result of the US/BVI IGA, BVI Financial Institutions will be “deemed compliant” with the requirements of US FATCA and will not be subject to the withholding tax that may otherwise be applied by US withholding agents. 
BVI Reporting Financial Institutions will still need to apply for a Global Intermediary Identification Number (GIIN) from the IRS and register as Registered Deemed Compliant Foreign Financial Institutions. Obtaining a GIIN will provide independent certification to withholding agents of FATCA compliance.  Once the US/BVI IGA has been signed, BVI Reporting Financial Institutions will be able to register and obtain a GIIN.  However, they will not be required to provide a GIIN to withholding agents prior to 1 January 2015.  Concern has been expressed by some industry observers that withholding agents may insist on a GIIN being produced from 1 July 2014 when FATCA is due to come into force.  IRS guidance does clearly provide that a Reporting Financial institution under a Model 1 IGA does not need to provide a GIIN prior to 1 January 2015.  However, a Reporting Financial Institution may need to register prior to 1 July 2014 if it maintains one or more branches in jurisdictions which are not covered by a Model 1 IGA.   For example, a BVI Reporting Financial Institution with a branch in Bermuda (which has signed a Model 2 IGA) may need to have a GIIN by July 2014. 
The IRS is due to publish the first list of GIINs on 2 June 2014.  In order to be on this list, a financial institution must submit its application online no later than 24 April 2014.
Further guidance on the implications of UK FATCA and US FATCA for BVI and Cayman entities and the services to be offered by Harneys Services will be issued in the coming weeks. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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