British Virgin Islands signs tax information exchange agreement with Canada

On 21 May 2013, the government of the British Virgin Islands (BVI) signed a tax information exchange agreement (TIEA) with the Canadian government. The BVI is now party to 24 TIEAs, with a number of TIEAs recently having come into force with major economies, including India, China, the Czech Republic, Ireland, Iceland and Germany. TIEAs facilitate the exchange of tax information between two jurisdictions and are utilised to help prevent tax evasion (where no tax treaty already exists).

The BVI/Canada TIEA is significant due to changes introduced to Canadian tax laws as a consequence of 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 resident 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…

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