Economic substance debate in House
An amendment to economic substance laws to be tabled in Parliament today was expected to mean companies that are tax resident elsewhere will be exempt from the regulations.
The move would set Bermuda in line with other jurisdictions that also committed to introduce legislation before the end of last year to address European Union concerns about offshore shell companies set up to avoid onshore tax rates. It was believed the Government planned to go through all three House of Assembly readings of the amendment Bill today, which would mean it could be passed by MPs hours after it was tabled.
Although the amendment was expected to be welcomed, as it could prevent companies from leaving Bermuda, an Opposition MP was worried that the public would not have the chance to review the legislation before it was passed. According to Standing Order 29 published on the Bermuda Parliament website: “A Bill shall not be called for a second reading until it has been printed and distributed and not earlier than seven days following its introduction.”
It was understood the order would be suspended to allow the Bill to progress before the Economic Substance Act 2018 becomes applicable to existing entities on July 1. The legislation took effect for new companies last December 31.
Trevor Moniz, of the One Bermuda Alliance, said yesterday: “The Government want to do the first, second and third readings on the same day; it’s quite concerning.
“Obviously, I’m concerned from the Opposition perspective, but I’m concerned from the public perspective, the people of this country should have the opportunity to put it in the sunshine of public scrutiny.
“To table it and pass it on the same day, to me, is not desirable.
“To me, it seems like damage control on the part of the Government; that they missed out on this, I don’t know why, like we didn’t get the memo.”
The Economic Substance Regulations 2018 were previously amended less than two months after they came into force and changes then included tighter wording and terms for greater clarity.
Bermuda was temporarily placed on the EU list of noncooperative jurisdictions for tax purposes in March due to a typographical error in the rules, but the mistake was corrected and the island was later delisted.
James Ferris, an advisory leader at PwC Bermuda, told an information session this year that the country needed to stay alert if any jurisdictions capitalised on the provisions in their own substance rules.
The Royal Gazette reported in March that Bermuda had not sought a “carve-out” whereby the requirements would not apply to business entities on the island that were tax resident elsewhere, which was in the regulations of other international financial centres like the Cayman Islands and British Virgin Islands.
Mr Ferris was not aware of what was included in the amendment Bill, but said if it set out to address the anomaly, it would be welcomed. He explained yesterday: “I think the business community will respond positively to the Act including an exemption for entities that are tax resident elsewhere for two main reasons.
“One is that it puts Bermuda on par with the other territories that have enacted economic substance legislation, so there is no jurisdictional arbitrage.
“Secondly, there is a significant number of Bermuda entities that are tax-resident in other countries and, without this amendment, would need to spend time and money addressing substance in multiple jurisdictions needlessly. This amendment would be welcome because it will ensure a number of employers who are tax resident in other territories can continue to operate with certainty, and certainty keeps companies here and keeps employers on the island.”
He added: “Assuming that the amendment goes through to enable a tax-residency exemption, I think it’s great news for the island.”
Other jurisdictions that incorporated the carve-out in their legislation were understood to have also included the requirement for entities to show evidence of foreign tax residency.
If passed by MPs, the Economic Substance Amendment Act 2019, which was listed on the Order of Business for today’s House sitting, would still need to go through the Senate before it went to the Governor for assent. The Government did not comment by presstime.
MPs will discuss the Electricity Amendment Act 2019, which would require the Regulatory Authority to obtain ministerial approval before transferring a power generating licence.
The House is to consider legislative amendments on the Bermuda Economic Development Corporation’s power to enter agreements for the development of new businesses.
Kim Wilson, the health minister, will table the Medical Practitioners Amendment Act.
Diallo Rabain, the Minister of Education, will update the House on scholarships to The University of the West Indies.