Timing of compliance and reporting obligations

Substance on Substance

SOS Substance on Substance: Episode fourteen – Timing of compliance and reporting obligations

In the fourteenth instalment of Harneys’ Substance on Substance series, Philip Graham and Joshua Mangeot discuss timing for compliance and reporting and address the ongoing obligation on BVI companies and other legal entities to identify “relevant activities”. This obligation came into effect from 1 October 2019 but is distinct from the reporting obligations which will generally commence in 2020 (except in the case of previously “exempt persons”, who now need to be reporting beneficial ownership information if they carry on any relevant activities).

Key Takeaways

• The amendments to the Beneficial Ownership Secure Search System 2017 (the BOSS Act) enacted on 1 October 2019 included an ongoing obligation to identify relevant activities (and failure to do so without reasonable cause is technically an offence)

• As of the 1 October amendments, previously “exempt persons” under the BOSS Act which carry on any relevant activity have ceased to be exempt from reporting beneficial ownership information – this must generally be reported within 15 days (so potentially from 16 October 2019 at the earliest)

• This bolsters any compliance obligations under the main economic substance legislation which came into effect for BVI companies and legal entities earlier in the year

• All entities should generally have identified any “relevant activities” by now, if they have not already done so – although many BVI legal entities will be exempt from requirements to demonstrate substance either (i) because they are not carrying on any relevant activity or (ii) due to their tax status under non-BVI law

• Conversely, reporting of the prescribed economic substance will generally commence in 2020 and is expected to be done via an entity’s BVI registered agent

• The ITA is generally expected to commence an audit and investigation of entities’ compliance with the economic substance requirements under its broad power following the first round of reporting in 2020 but this will be on a “backwards-looking” basis in respect of the first compliance “financial period” – so entities should be maintaining robust books and records for the first financial period to be ready to report and comply with any ITA information requests

• Where entities have taken legal advice on their position under the economic substance legislation, we recommend that they consider taking steps to preserve legal advice privilege in the advice itself (particularly if this will be provided to their registered agent or other third-parties)

• Generally, the ITA has six years from the end of the relevant financial period to make a determination of non-compliance (but this timeframe is unlimited in cases of deliberate misrepresentation or negligent or fraudulent action)