Following the introduction of the Economic Substance (Companies and Limited Partnerships) Act 2018 ( ES Act) and the passing of the deadline for the first filings thereunder to be made by BVI entities, the BVI International Tax Authority (ITA) has now begun making targeted audit requests to verify the “relevant activities” carried out by BVI entities which have made their mandated economic substance filings.
The questions raised by the ITA in these audit requests have included not only details of the business purpose, assets and day-to-date activities of the relevant entity, but also details as to what steps the entity took in order to make its determination as to what, if any, relevant activities were carried on by the entity during the financial period in question. It is therefore important that BVI entities properly document any legal advice which was obtained and their decision making process in determining their status under the ES Act (e.g. through written memos of advice from BVI legal counsel and director resolutions).
BVI entities which have been determined to be carrying on any “relevant activities” under the ES Act other than “passive holding business” (including any entities which have provided multiple interest-bearing loans as lender and entities which actively manage their investments) should by now have taken concrete steps to ensure that their “core income generating activities” (as defined in the ES Act) and director meetings and other relevant decision making processes are physically taking place in the BVI.
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