Mutual Legal Assistance (Tax Matters) (Amendment) Act, 2005 (No. 16 of 2005)

Summary

This Act amends the Mutual Legal Assistance (Tax Matters) Act, 2003 to implement the EU Council Directive 2003/48/EC on the taxation of savings income in the form of interest payments (the EU Savings Directive) in the Virgin Islands. It inserts a new Part II into the principal Act creating detailed obligations for paying agents and economic operators dealing with interest paid to individuals resident in EU Member States, alongside a withholding tax regime and, eventually, an automatic information exchange regime.

• Identity and residence checks: Paying agents must establish the identity (name, address, tax identification number where applicable) and country of residence of beneficial owners of interest payments, using specified documentary evidence such as passports, identity cards or tax residence certificates.
• Withholding tax: A paying agent established in the Virgin Islands must levy withholding tax on interest paid to individuals resident for tax purposes in another EU Member State, at rates rising over time: 15 percent from 1 July 2005 to 31 December 2007, 20 percent from 1 January 2008 to 31 December 2010, and 35 percent from 1 January 2011.
• Remittance of withholding tax: The Government retains 25 percent of withholding tax collected and must transfer the remaining 75 percent to the beneficial owner's Member State of residence within six months following the end of the relevant tax year.
• Exchange of information (future): Once section 17 is brought into force by Ministerial Order, the withholding tax regime is replaced by mandatory annual reporting of beneficial owner and interest payment details to the competent authority, which must pass this to the relevant Member State's competent authority within six months of the tax year end.
• Voluntary disclosure option: A paying agent must not levy withholding tax where a beneficial owner expressly authorises, in writing, reporting of information instead.
• Confidentiality: Information established or reported under Part II must be kept confidential; unauthorised disclosure is an offence punishable by a fine of up to ten thousand dollars and/or imprisonment of up to two years.

The Act also renames the existing Schedule as Schedule 1 and adds Schedule 2 (the text of the EU Directive) and provides for a Schedule 3 form of agreement with Member States. The amendment Act itself came into force on 1 July 2005.

Key obligations

• Paying agents must establish the identity of beneficial owners of interest payments in accordance with section 14, using passports, identity cards or other documentary proof.
• Paying agents must establish the residence of beneficial owners of interest payments in accordance with section 15, including obtaining a tax residence certificate where a beneficial owner claims third country residence.
• Paying agents established in the Virgin Islands must levy withholding tax on interest paid to individuals resident for tax purposes in another EU Member State, at 15 percent from 1 July 2005 to 31 December 2007, 20 percent from 1 January 2008 to 31 December 2010, and 35 percent from 1 January 2011.
• Paying agents must pay withholding tax levied to the competent authority.
• The Government of the Virgin Islands must transfer 75 percent of withholding tax collected to the relevant Member State (or other Member States, as applicable) within six months following the end of the relevant tax year.
• Once section 17 is brought into force, paying agents must report beneficial owner identity, residence, and interest payment details to the competent authority instead of withholding tax, and the competent authority must forward this information to the beneficial owner's Member State at least annually within six months of the tax year end.
• A paying agent must not levy withholding tax where a beneficial owner has expressly authorised, in writing, reporting of information instead, and must then report as required.
• Persons handling information under Part II must keep it confidential and not disclose it except as permitted, on pain of a fine up to ten thousand dollars and/or imprisonment up to two years.
• The Financial Secretary must notify in the Gazette any designation of a person or authority as competent authority.

Applies to

paying agents, economic operators, financial institutions handling interest payments to EU residents

Deadlines

• 1st July, 2005: Commencement date of the Amendment Act and start of the first withholding tax rate tier (15 percent).
• 31st December, 2007: End of the 15 percent withholding tax rate period.
• 1st January, 2008 to 31st December, 2010: 20 percent withholding tax rate period.
• 1st January, 2011: Withholding tax rate rises to 35 percent.
• within a period of six months following the end of the tax year: Deadline for the Government of the Virgin Islands to transfer withholding tax collected to the relevant Member State, and for the competent authority to communicate reported information to a Member State's competent authority.
• such date as the Minister may, by Order published in the Gazette, appoint: Commencement of section 17 (exchange of information), which replaces the withholding tax regime once in force.

Related documents

• This document amends Mutual Legal Assistance (Tax Matters) Act, 2003 (No. 18 of 2003)