WHAT DOES THE BRITISH ELECTION RESULT MEAN FOR THE OVERSEAS TERRITORIES AND THE BVI IN PARTICULAR?

The United Kingdom (UK) election on 7 May, 2015 was a bad one for opinion polls. All the predictions pointed to a hung parliament with the math seeming to favour Ed Miliband of the Labour Party to succeed David Cameron and become the next Prime Minister, albeit as part of a coalition or minority government. The pollsters got it terribly wrong and come the second week of May, David Cameron was presiding over the first all-Conservative Cabinet for 18 years from Downing Street, while Miliband contemplated what had gone wrong from a holiday villa in Ibiza.

Prime Minister Cameron is now free of the shackles of a coalition government (the 2010-15 government while led by Cameron was in coalition with the centre-left Liberal Democrats). In theory, this should mean a clear run at implementing all of the Conservative Party’s manifesto commitments. However, the party’s House of Commons majority is just 12 and Prime Minister Cameron is already being reminded of how fragile that is by some of his rebellious backbenchers. To provide some context, John Major won the 1992 election with a majority of 21 but that majority steadily diminished during the term of the parliament, largely as a result of by-elections and it disappeared altogether towards the end. So what does the election result mean for the Overseas Territories (OTs) and the British Virgin Islands (BVI) in particular?

UK politics over the next couple of years is likely to be dominated by two issues: the European Union (EU) referendum and austerity. A simple in or out of the EU referendum was promised and will now take place before the end of 2017. The official position is that Prime Minister Cameron will negotiate a new deal with the EU and then put it to the vote. There is practically no doubt that whatever deal is reached, Cameron will be in the yes camp, opting to remain part of the union. That much is not terribly controversial. However, in the few weeks following the election, there were disagreements within the parliamentary party over the exact question to be asked, the date of the referendum (Cameron is thought to favour a quick vote to get it out of the way, while Euro-sceptics would like to have time to organise their opposition), whether ministers can remain in office while supporting the out vote, how the civil service will act during the campaign and so on.

Many disputes already, but none concern the actual merits of remaining in the European Union. An out vote in the referendum is, according to the current polls, unlikely. An intriguing perspective but these are the same polls that got the election result so wrong. So how much credence should we give them? Whatever the outcome, we can reasonably expect a good deal of debate about the UK’s place in the world and its foreign relationships in the period leading up to the referendum. Whether or not and to what extent the referendum itself will impact the Overseas Territories is difficult to predict, but influences are unlikely to be felt straight away. Nonetheless, on balance, a Britain which is less introspective and looks to the global economy for growth rather than just the EU is likely to look more sympathetically at the role of the BVI financial services industry. To the extent that the referendum dominates the domestic agenda, other matters may be pushed out of the spotlight or down the list of priorities. That could be a good thing but the flip side is that decisions made in a hurry or in a vacuum are much less likely to be good ones.

Austerity, in the form of government cuts is unlikely to have a material impact on the Overseas Territories. Do not expect any handouts from the UK Government. Interaction between BVI residents and the UK will probably mean higher fees – the cost of a UK passport is already one of the highest in the developed world, but nobody would rule out further increases and further tax changes are likely to target non-residents. Member of Parliament (MP), James Duddridge remains the Parliamentary Under-Secretary of State in the Foreign and Commonwealth Office (FCO) with responsibility for the Overseas Territories (having succeeded in August 2014 from Mark Simmonds). Continuity in the role is to be welcomed given the broad remit. In contrast, few in the Overseas Territories will miss Margaret Hodge MP as Chair of the Public Accounts Committee, due to her frequent and fierce criticism of the BVI and other OTs for their perceived role in tax avoidance. One would be forgiven a touch of schadenfreude when it was disclosed in April 2015 that Mrs. Hodge benefited from distributions from a Liechtenstein Foundation in 2011 as a result of the Liechtenstein Disclosure Facility. Mrs. Hodge is succeeded by Meg Hillier MP as Chair of the Public Accounts Committee.

The Conservative Party manifesto expressly mentions the Overseas Territories in just two places. The first is a commitment to support the creation of so called “blue belt” maritime conservation areas subject to local assistance and environmental need. The second, a commitment to defending the territories which was perhaps written more with the Falkland Islands in mind. While welcome, neither of those commitments is likely to have an impact on day to day lives in the BVI, let alone be transformational. It is necessary to drill down and look at some of the policy detail.

The manifesto states the UK will “continue to lead the world on tax and transparency” and “lead international efforts to ensure global companies pay their fair share in tax. The disclosure of beneficial ownership of companies has been the focal point of UK / BVI relations since the G8 conference in 2013 and looks set to continue to be that way. In the UK, the Small Business, Enterprise and Employment Act, 2015 received Royal Assent on 26 March, 2015. UK companies are required to keep a register of “people with significant control” (PSC) from January 2016 and to file the information with UK Companies House annually from April 2016.

The PSC information will be available for public inspection. Publically at least, the UK remains committed to implementing Financial Action Task Force (FATF) and G20 standards on antimoney laundering and terrorism financing. However, it has declined to regulate trust and company service providers (TCSPs). The UK model has no empirical evidence to support its effectiveness and no mechanism for verification of data accuracy as required by FATF and G20 standards. Despite these limitations, the UK continues to urge the Overseas Territories to implement a central register of beneficial ownership, although it appears that the requirement for it to be public is no longer being pursued with the same vigour.

The EU’s Fourth Anti-Money Laundering Directive (AMLD4) took effect on 26 June, 2015. Member states have two years from that date to implement the directive into national law. AMLD4 requires member states to implement central registers of beneficial ownership and to provide access to authorities and “obliged entities”. The directive does not apply to the BVI, but the UK is using its existence to apply further pressure on the central register issue pointing to the emergence of an international standard.

The BVI maintains that the FATF and the G20 standards remain the applicable international standards and that the specific measures to achieve those standards remain a jurisdictional choice. It is clear that many jurisdictions outside of the EU have not committed to central registers, most notably the United States. The risk remains that while the Overseas Territories (including the BVI) have convincing intellectual arguments over the effectiveness of their AML regime – especially when compared to the UK – the intense pressure from the UK to deliver on a political commitment will not go away.

In June 2015, the EU published an Action Plan for Fair and Efficient Corporate Taxation calling for the introduction of common tax rules among member states to combat tax avoidance. Part of that announcement on 17 June included a “new” EU blacklist of 30 noncooperative jurisdictions, which includes the BVI. It is important to understand that the EU blacklist does not present any new information and there are no direct consequences of being on the blacklist. It is merely the results of analysing member states blacklists as of December 2014 in what the EU describes as a first step towards a common approach to non-cooperative tax jurisdictions. The EU Action Plan states that the list “offers member states a transparent tool to compare their national lists and adjust their respective approaches to non-cooperative tax jurisdictions as necessary”. However, its own analysis conducted by the Platform for Tax Good Governance, contradicts this by highlighting a number of issues with its own data.

First, only half of the 28 member states maintains a national list. Germany also maintains a list, but it is currently empty. In addition, the difficulties of keeping national lists up to date are real. By way of example, the EU reports that eight member states still list the Netherlands Antilles despite the fact that it has not existed as a jurisdiction since October 2010 and Belgium has failed to review its list once since its adoption in 2010. While member states have been inactive, the BVI has done much to meet developing international standards. Since 2010, the BVI has entered into many Tax Information Exchange Agreements (TIEAs); signed Intergovernmental Agreements (IGAs) with the US and the UK for automatic tax information exchange; committed to the Common Reporting Standard as an early adopter and signed and implemented the Convention on Mutual Administrative Assistance in Tax Matters.

As a result, the BVI has agreements to exchange tax information matters with all 12 of the EU member states which have put the BVI on their own national black list, with the exception of Bulgaria since that country has not signed the Convention. The criteria for being on a member state black list is varied and the impact is equally varied. Even the Organisation for Economic Cooperation and Development (OECD) has criticised the EU’s list in public correspondence.

While the EU’s blacklist can be picked apart with about 30 minutes of online research, the BVI’s inclusion, is without doubt unhelpful. The BVI needs to be proactive and communicate with stakeholders that the blacklisting has no immediate impact and also engage the EU and individual member states to press the shortcomings of any kind of blacklisting and that given the steps taken, the BVI should not be included. A default agreement seems to already exist, as many member states do not produce blacklists. The UK should assist its Overseas Territories in communicating that message, but will they be motivated to do so in light of the UK’s demands for a central register of beneficial ownership? The newly elected BVI Government will have to apply a mix of old fashioned skills of diplomacy, negotiation and discretion, combined with grit and stamina to find a pathway, that not only meets developing international standards, but satisfies the UK’s political ambitions and commitments.

Last modified onMonday, 10 August 2015 15:03

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