Chief Minister clarifies initiative to abolish Income Tax
Neither the Organization for Economic Cooperation and Development (OECD) nor the European Union has made any specific initiative or brought to bear any pressure on the British Virgin Islands to abolish income tax, according to Chief Minister and Minister of Finance the Honourable Ralph T. O’Neal.
He gave this answer in response to a question during the September 13th sitting of the Legislative Council posed by Opposition Leader Dr. the Hon. Orlando Smith.
Chief Minister O’Neal explained that in 1998, the OECD established a framework to counter the spread of harmful tax practices with respect to geographically mobile activities, such as financial and other service activities, by the adoption of the report “Harmful Tax Competition: An Emerging Global Issue (the “1998 Report”).”
The 1998 Report identifies four (4) key factors for the purpose of identifying and assessing harmful preferential tax regimes. These key factors are: no or low effective tax rates (although the presence of a low or zero tax rate does not make a preferential tax regime harmful); “ring fencing” of regimes; lack of transparency and lack of effective exchange of information.
The Chief Minister went on to explain the situation, focussing on the ring fencing of regimes in identifying and assessing harmful preferential tax regimes. He said the 1998 Report states that a preferential regime will be considered to be ring-fenced only where it excludes resident tax payers from the benefits of the regime or where the enterprise qualifying for the regime does not have access to the domestic market.
“(This) is a perfect definition for the environment in which our International Business Companies (IBCs) operate,” Hon. O’Neal said.
He said in running the risk of over-simplifying the explanation, one can easily equate the “resident tax payer” as the local company which cannot under the current law benefit from the zero/no tax regime enjoyed by the
He said similarly, the IBC’s cannot transact business in the local economy and as such are denied access to the domestic market.
According to the BVI leader, mindful of the implications that the 1998 Report holds for our finance centre activities, government is actively considering moving to a zero income tax regime.
“This in common parlance translates to the abolition of income tax, that is, a zero obligation with respect to both personal and corporate income tax.”
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