British Virgin Islands: A Paradise on Earth for Tax Evaders

Published: May 27, 2016 - 13:38

Suneeth Cherieth Delhi

The Panama Papers leaks have proved that the use of tax havens to avoid or evade tax is a common phenomenon the world over. Now according to the OECD (Organization for Economic Co-Operation and Development) a tax haven can be defined as a jurisdiction that allows for avoidance and evasion of tax. There are few destinations around the world that can be considered as tax havens. And one such destination is a British overseas territory located in the Caribbean to the east of Puerto Rico called “British Virgin Islands or Virgin Islands”.

The British Virgin Islands (BVI) is an archipelago consisting of 60 islands. According to the islands history the first settlers were Arawak, a group of indigenous South Americans around 100 BC.  A significant presence of Amerindian on these islands around 1500 BC is also indicated. These islands are also tourist hotspots with tourism accounting for 45% of the national income. Apart from tourism these islands over the years have also become renowned for being used as a “tax haven” by the rich and the powerful. The major reason being the presence of a flexible tax system.

The tax system of these islands provides for no capital gains tax, no gift tax, no sales or value added tax (VAT), no profit tax, no inheritance or estate duty, and no corporation tax. So as is evident this system helps in avoiding taxes which in many other countries would have to be paid for. Thereby helping businesses flourish without the hurdle of tax scrutiny. We must also understand that in the world of taxation there are some transactions that are deemed legal while others illegal. The transaction that involves tax avoidance i.e. ensuring minimum amount tax is payable is legal. While tax evasion i.e. completely avoiding tax is illegal and is a form evil that is not only prevalent but is also a major issue in global governance currently.

The flexibility of the islands tax system is the major reason why it is commonly used as a haven to avoid and evade taxes.  And it is due to the large number of tax evasion cases that the islands unfortunately over the years have become infamous. The recent Panama Papers that were leaked on April 3rd 2016 not only implicate major powerful world leaders, sports personalities, media personalities etc but also exposes the role of BVI as a major tax haven.

For example in the Panama Papers the President of Ukraine Petro Poroshenko was alleged to have set up an offshore company called Prime Asset Partners Ltd on 21st August 2014. This offshore company was registered in BVI. Additionally, according to the leaked documents the King of Saudi Arabia Salman Bin Abdulaziz Bin Abdulrahman Al Saud was accused of using an offshore company in British Virgin Island to clear out his mortgages on many of his luxury London homes worth $ 34 million. These startling revelations in the Panama papers clearly indicating that BVI as a tax haven to evade taxation is the preferred choice for majority of the rich around the globe.

Although, BVI as a tax haven is not as bad as say Seychelles, Belize, Liberia, or Panama. The growing number of cases linked to the islands relating to tax evasion and money laundering over the years has certainly tainted the image of the islands. The fact that a reputed organization like OECD has also given the islands unfavourable ratings has only resulted in more damage to its image.

The Panama papers leak has clearly shown that the British Virgin Islands have become a popular choice as tax haven. With the growing menace of tax evasion and money laundering becoming a concern for the islands. The time is certainly ripe for the tax system of the islands to be revamped before it becomes too late to mend.