Following months of continuous work overseeing the development of rules on so-called “economic substance” with some of the world’s top international financial centres, including the BVI and Cayman Islands, the OECD finally published the results of its review into the impact of low or zero tax jurisdictions on the global economy, released on 23 July 2019.
The review was conducted by the OECD’s Forum on Harmful Tax Practices (FHTP), which has now evaluated the new domestic laws of 12 zero or only nominal tax jurisdictions. For 11 of these jurisdictions (including Anguilla, the British Virgin Islands and the Cayman Islands) the FHTP concluded that the domestic legal frameworks adopted are in line with the standard and therefore “not harmful” to the global economy.
This is a welcome development in this brand new area of law and means that further material changes to the substance requirements in the BVI and the Cayman Islands are unlikely in the coming months when entities in those jurisdictions will be completing their substance analysis and, if relevant, implementing measures to comply with the relevant economic substance tests. The BVI Tax Information Authority is expected to finalise its Code in coming weeks (following the draft published on 23 April 2019) and the Cayman Islands Tax Information Authority has announced further guidance “3.0” before the end of Q4 2019.
From 2020, the FHTP review of the effectiveness of jurisdictions’ substance mechanisms will become annual.
Our experienced Regulatory Department is at the forefront of developments in this new area of law and available to assist in multiple regions and around the clock.