The Canada-BVI Tax Information Exchange Agreement ("TIEA") came into force on 11 March 2014. The TIEA was signed in May 2013, and the effective date provisions are set out in Article 13 of the Agreement. The BVI is now party to 25 TIEAs.
What are the benefits?
The BVI/Canada TIEA is significant due to changes introduced to Canadian tax laws under the 2007 Canadian Budget, which provides beneficial tax treatment for business income repatriated from TIEA jurisdictions, such as the BVI. It is understood that under Canadian law, active business income of a company resident1 in a TIEA jurisdiction is eligible for tax-free dividend repatriation to a Canadian parent as "exempt surplus", thus allowing the Canadian parent to benefit from the BVI's zero rate corporate tax regime. Additionally, passive business income, such as interest received from another foreign affiliate resident and carrying on an active business in a third jurisdiction (also being a TIEA or double-taxation treaty jurisdiction) may also qualify as "exempt surplus" so long as the amount is deductible in computing active business income of the first affiliate.
The BVI will now qualify as a "designated treaty country", affording the BVI the same treatment as a country sharing a double-taxation treaty with Canada, with the added benefit of a zero rate corporate tax regime (putting the BVI in a favourable position as compared to designated treaty countries with higher tax rates, such as Barbados). It is also noteworthy that the BVI does not levy any capital gains tax, stamp duty or withholding tax, unlike some of Canada's double-taxation treaty partners.
The BVI/Canada TIEA now provides a more tax-efficient basis for Canadian-owned groups to utilise BVI companies in their global structures. Among other major international financial institutions and professional advisors, Canadian financial institutions, such as Scotiabank and CIBC, maintain a physical presence in the BVI. The BVI/Canada TIEA will now make it more appealing for Canadian companies to register new BVI subsidiaries and affiliates or relocate existing companies to the BVI from other jurisdictions. The BVI has to date entered into TIEAs with the following countries: Aruba, Australia, Canada, China, Czech Republic, Curaçao, Denmark, Faroe Islands, France, Finland, Germany, Greenland, Guernsey, Iceland, India, Ireland, Netherlands, New Zealand, Norway, Poland, Portugal, Sint Maarten, Sweden, UK, and USA.
For further information regarding how TIEAs operate in practice, please refer our earlier briefing.
Footnotes
1 Based on current Canadian tax policy with respect to residency, in order to qualify for "exempt surplus" treatment under a TIEA, the foreign affiliate must meet the common law mind and management test.
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