Bermuda ahead of game on EU taxes – expert
Tough new European Union rules designed to combat tax avoidance can be turned to Bermuda’s advantage, a top manager at professional services firm KPMG said yesterday.
Will McCallum, a KPMG managing director, said turmoil caused by the Economic Substance Act, passed by Parliament last year to bring the island into line with an EU attempt to combat companies with only a technical base offshore, could help to attract more business.
More than 40 jurisdictions were required to pass legislation, and low or no-tax zones were warned they could be put on a “blacklist” by March if they failed to tackle European Code of Conduct Group concerns over tax avoidance by multinational companies.
Mr McCallum told The Royal Gazette: “This is a pretty significant change, it’s not just Bermuda, it’s all the British Overseas Territories, Crown Dependencies and a number of other jurisdictions.
“One tangential goal here is that it really does feel like Bermuda can come out ahead on this.
“At a minimum, Bermuda has already come out ahead in that it’s passed its legislation, and most of the jurisdictions have, but if we were in a situation where we had not passed our legislation and others had — not having this legislation in place and ending up on a blacklist in March is just unacceptable, untenable, can’t happen.
“Now that Bermuda Inc is in a position where the world has changed a little, getting us all together in a room, walking through the implications to certain industries, providing a broad outline of the rules, making sure everyone is aware as to what the response is — I think there’s a real benefit there to everyone.”
Economic substance means firms must show a physical presence, employees and revenue-generating activities.
Mr McCallum is scheduled to speak on the subject on Friday at an information session organised by KPMG.
Mr McCallum said the first task was to ensure businesses already based on the island knew what was needed to avoid penalties or unwarranted attention from the EU.
He admitted: “We will probably lose a few entities from Bermuda but if you look across the other jurisdictions, they’re in the same boat.
“Entities in all these jurisdictions need to assess their circumstances, determine whether they meet the substance requirements in that jurisdiction, if they don’t, either leave or liquidate.”
Mr McCallum said business leaders would consider infrastructure, access to talent, premises and operating environment when they weigh up their options.
He added: “It’s kind of hard to imagine across all these jurisdictions a better place than Bermuda for most of them.
“If you look at the depth of our infrastructure, the service providers, the quality of the regulator, the quality of our local law and legislation, our courts — we stand really at the front of the pack in that regard.”
Companies affected by the new rules are those that conduct “relevant activities”, which includes insurance, banking and fund management.
Mr McCallum said: “It’s better the talent base already exists in that jurisdiction — accountants, lawyers, actuaries, bankers, people with financial experience.
“There is just no place better than Bermuda.”
He added: “If we have entities in those other jurisdictions looking for a home, it just feels like we’re a fantastic port of call.”
Mr McCallum said the implementation of the regime will be monitored by EU watchdogs and that its introduction was an “incredibly disruptive event”.
He added: “There will never be another opportunity like this, to get in front of people and remind them of the Bermuda message.”
Mr McCallum said the loss of any company from Bermuda would have an impact but the island was well placed to counter any departures.
He said: “The base of Bermuda’s economy isn’t tens or hundreds of thousands of faceless companies that do very little here. The basis of Bermuda’s international business community is companies that have substantial presence here, that employ a lot of people here, that are in highly regulated industries like insurance or banking, a lot of these entities will need to assess whether they meet economic substance requirements but a lot of them, frankly, will.”
Mr McCallum added: “A number of companies leaving that do nothing here is very easily offset by an increase in real presence by a similar or even smaller number of companies that are hiring people, spending more money locally, renting corporate office space.”
He said: “Bermuda Inc needs to be on the front foot here making sure that, given this sort of disruptive event, everyone’s looking for opportunities to attract quality companies here.”
Mr McCallum said the legislation referred to “adequate” presence rather than specific numbers and that that was the “most challenging” of its elements.
He added: “Entities all over the world, and specifically in Bermuda, now need to be assessing whether they have adequate people with the adequate experience and they’re spending the right amount of money and they have adequate physical premises.”
John Wight, the Bermuda Chamber of Commerce president, said it was too early to tell what impact the new legislation would have on the business sector.
He said the business community supported the Government’s commitment to “ensuring that Bermuda will not be on any EU list of non-compliant jurisdictions”.