Starting the tax year between January and December, 2011, BVI will follow the Directive via an automatic exchange of information system with tax authorities in EU member countries.
In 2005, BVI authorities revised the country's Mutual Legal Assistance (Tax Matters) Act to embrace the Directive as the United Kingdom arranged such regimes in its offshore dependencies, including BVI.
Under the Directive, so-called paying agents must report "minimum information" about savings income to their local tax authorities, who in turn disclose it to the foreign tax authorities where the individuals are residents.
However, the EU authority also added a withholding tax option at that time to soothe countries that didn't favor the information exchange system. As a non-EU jurisdiction, BVI decided in 2005 to implement the option as a mandatory requirement to be imposed by all BVI-based paying agents.
Under the withholding tax arrangement, instead of reporting the minimum information, paying agents are allowed to withhold a percentage of the income due and deliver it to the relevant foreign tax authority via the local tax authority.
Last year, the European Parliament adopted a resolution on improving tax governance, calling upon countries to rev up actions and to take immediate concrete measures against tax havens, tax evasion and illicit capital flight.
As part of the resolution, EU decided to end the temporary derogation that permits Austria, Belgium and Luxembourg to avoid exchanging information by applying a withholding tax under the EC Directive 2003/48. The scope of the Directive is also expected to be extended substantially to cover legal entities (especially private companies and trusts) and different forms of investment incomes.
Under such a scenario, the BVI government has decided that as of 1 January 2012, all BVI-based paying agents will no longer be entitled to the withholding tax option as a tool of complying with the Directive.
Instead, these institutions in BVI must report the minimum information to the BVI Inland Revenue who will in turn adopt the information exchange policy under the Directive.
The minimum information includes the identity and residence of the beneficial owner; the name and address of the paying agent; the account number of the beneficial owner or, where there is none, identification of the debt claim giving rise to the interest; and information concerning the interest payment.
The change is set to affect EU member states' residents who have savings accounts with BVI-based banks.
EU members have also called for the provisions of the EC Directive 2003/48 to be extended to Singapore, Hong Kong, Macao and other jurisdictions such as Dubai, New Zealand, Ghana and certain states of the United States, which are not bound by the Directive and are a favored location for tax evaders.
