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BVI Responds To OECD With Comprehensive Changes

by Mike Godfrey,, New York

31 December 2001

British Virgin Islands Chief Minister and Minister for Finance Ralph T. O’Neal presented his government's budget before Christmas, forecasting record revenue of $201 during the upcoming fiscal year. Mr O'Neal said: “Not only is this sum significant, but it was only in 1996 that we broke the $100M mark.” He said that the government expected to collect in excess of the budget revenue of $192M in 2001, adding that if it had not been for the events of September 11th, the total would have been $197m: "In the month of September we lost some $7M that was never regained . . . .Comparing that to 2000, revenue collected was $182M. The projected increase collection in 2001 over that of 2000 is some $8M or 4%."

Gross Domestic Product (GDP) for 2001 would come in at approximately $742m, reflecting growth of 8.7% over 2000. The annual rate of inflation for 2000 was 2.8% and the inflation rate for 2001 averaged 3.13%. “Factors such as these become increasingly more important to guide the government in planning and analysing its economic affairs and repositioning the territory where necessary,” Chief Minister O’Neal stated. The Consolidated Fund balance as at December 31st, 2000 stood at approximately $96M. The projected surplus for 2001 will carry the balance over the $100M mark.

As regards the international borrowing criteria mandated by Her Majesty’s Government, the Chief Minister said that the BVI was at approximately 70% of its borrowing capacity, including envisaged borrowing. Recently, a team from the Foreign and Commonwealth Office had visited the territory to assess the state of affairs and advance the process towards adopting formally the borrowing criteria. The report was to be laid before the House shortly.

“I am Sir, concerned that whilst the overall gist of the report was favourable, it highlighted that petty contracts are not used in the most effective way to ensure value for money,” Hon. O’Neal hinted. He said the BVI has to be careful not to subscribe to monopoly and oligopoly scenarios, but introduce more competition so that the pricing structure would be more effective.

The financial services industry was expected to contribute over $100M for the government in 2001. Said Mr O'Neal: “The industry continued to operate under intense international scrutiny in 2001. I am therefore pleased…to inform…that notwithstanding the anxieties, uncertainties, fears and misgivings, rumours, innuendos, threats and misinformation occasioned by the myriad of initiatives targeting offshore centres, the local industry performed admirably in 2001.”

The Chief Minister said that the BVI government had engaged in dialogue with the OECD and now had a much better appreciation of the level playing field case being made by targeted jurisdictions. He said the revised OECD Harmful Tax Competition Initiative as outlined in the recently released OECD 2001 Report was not perfect, but was a move in the right direction. “It signals that for the first time, the OECD is publicly conceding not only the flawed nature of the initiative, but more so that it is not the source of infinite wisdom,” he said, suggesting that solutions to the problem might very well lie outside the OECD and within the targeted jurisdictions including the BVI.

“Mr. Speaker, Honourable Members should be aware that this country is the only UK Caribbean Overseas Territory with measures identified as being offensive to the EU Code of Conduct,” Mr. O’Neal reported. “I speak specifically of our IBC’s and Income Tax regimes, which both contain ringfencing mechanisms.”

“Accordingly, Mr. Speaker, the Attorney General’s Chambers, in collaboration with the Financial Services Commission and the local industry, will be amalgamating the local Companies Act Cap. 285 and the IBC Act Cap. 291 into a singly corporate statute during the year,” the Chief Minister announced. He said further initiatives to repeal and replace the Income Tax Act were underway.

Mr O'Neal outlined a major series of legislative initiatives for 2002 which would include a new Money Services Bill aimed at policing the perimeter of regulated activities, Protected Cell legislation to embrace both insurance companies and mutual funds, a new investment business legislation aimed at regulating investment intermediaries, a long-awaited Insolvency Bill, and an amendment Bill in respect of all current financial services related legislation to update and modernize current practices.

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