Retention of Records – clarification for BVI companies and extension to BVI trusts and all BVI partnerships
This year we have seen the enactment of the Trustee (Amendment) Act 2015, the Partnership Amendment Act 2015 and the Mutual Legal Assistance (Amendment) Act 2015 relating to the retention of certain records and documents by such entities, driven by the OECD
The Mutual Legal Assistance (Amendment) Act 2015 (“MLAA”)
The MLAA has provided some clarification on the often queried issue of what is meant by the “records and underlying documentation of a company” which are required to be kept by a BVI company.
The MLAA provides that “records and underlying documentation includes accounts and records (such as invoices, contracts and similar documentation) in relation to (a) all sums of money received and expended by the company and the matters in receipt of which the receipt and expenditure takes place; (b) all sales and purchase of goods by the company; and (c) the assets and liabilities of the company”.
The Trustee (Amendment) Act 2015 (“TAA”)
The TAA, which amends The Trustee Act 1961, provides that every trustee shall maintain records and underlying documentation of the trust (of which they are trustee) and retain these records and underlying documentation for a period of at least five years. The penalties for non-compliance are severe: a trustee that does not comply with the Act may be fined up to US$100,000 or face imprisonment for a term of up to five years.
Records and Underlying Documentation
The TAA requires that a trustee shall maintain records and underlying documentation (within or outside the BVI) and that such records and underlying documentation shall be in such form as (a) are sufficient to show and explain the trusts’ transactions and (b) will, at any time, enable the financial position of the trust to be determined with reasonable accuracy.
The term ‘records and underlying documentation’ includes the ‘accounts’ of the trust and helpfully, the TAA establishes that ‘accounts’ includes invoices, expenditure documents, sales and purchase receipts and details of the assets and liabilities of the trust. It is already understood that trustees will, as part of their fiduciary duties, keep records of the accounts of the trust, as well as records of all distributions or applications of the trust property. Whilst it is likely that trustees will already have available to them balance sheets, profit and loss accounts or financial statements relating to the trust, the TAA now places a mandatory obligation on trustees to maintain their records and so does not necessarily create a fresh administrative burden.
The TAA states that the records and underlying documentation are to be retained for a period of at least five years. What is not clear is when the five year period begins, or when the trustee’s obligation ceases. The preferred approach is that the trustee retains the records for five years following the date on which they cease to act as trustee.
The Partnership Amendment Act (2015) (“PAA”)
The PAA amends the Partnership Act 1996 to extend the record keeping requirements that were previously only applicable to BVI limited partnerships to all BVI partnerships.
Records and Underlying Documentation
The PAA tracks the wording of the TAA and the Mutual Legal Assistance (Tax Matters) Act 2003 by requiring that a partnership shall keep and maintain records and underlying documentation that (a) are sufficient to show and explain the partnership’s transactions and (b) will, at any time, enable the financial position of the partnership to be determined with reasonable accuracy. It is an offence for a partner to “wifully contravene” these record keeping requirements.
In line with companies and trusts, the records and underlying documentation of partnerships must be retained for a period of at least five years. As with companies, the five year period commences from either (a) the date of completion of the transaction to which the records and underlying documentation relate; or (b) the date the partnership terminates the business relationship to which the records and underlying documentation relate, with business relationship defined as “a continuing arrangement between a partnership and one or more persons with whom the partnership engages in business, whether on a one off, regular, habitual or regular basis”.
It is clear that the obligations now imposed on trustees, under the TAA and on partners under the PAA are part of a continuing trend implementing the requirements of the Mutual Legal Assistance (Tax Matters), 2003 (as amended) which reforms the record keeping requirements of trusts, partnerships and companies. Keep in mind, though, that these are not simply BVI requirements, but rather are obligations which are being imposed on a global basis, aimed at facilitating the exchange of information between governments and central authorities.
Karen Gilbert and Lorraine Bartlett
 Replaces paragraph 5(c) of the Mutual Legal Assistance (Tax Matters) Act 2003