EU welcomes’ economic substance amendment
European Union leaders welcomed an amendment to economic substance laws before it was tabled in the House of Assembly, the Senate heard yesterday.
Vance Campbell, the government Senate spokesman on finance, said Curtis Dickinson, the Minister of Finance, sought EU support amid concerns that the original legislation left the island at a competitive disadvantage.
The Economic Substance Amendment Act 2019 was tabled and passed by MPs last Friday and senators followed suit yesterday.
It means that entities that are resident in another jurisdiction will not fall within the scope of the regulations, provided that their home base was not on the EU “blacklist” of noncooperative jurisdictions for tax purposes.
Non-resident entities that conduct relevant business under the Act will need to state where they claim to have tax residency as well as provide supporting evidence.
The Economic Substance Act 2018 was introduced at the end of last year to address EU concerns about offshore shell companies set up to avoid onshore tax rates. It came into effect for new entities on December 31.
Mr Campbell told the Senate that “due to a potentially significant impact on the Bermuda economy” it was “critical” that the amendment was enacted before July 1, when the law becomes applicable to existing entities.
He explained that when Mr Dickinson met Lyudmila Petkova, the chairwoman of the EU’s code of conduct group on business taxations, in April, he “expressed his concerns about a potential lack of a level playing field” between the jurisdictions affected by economic substance legislation.
Mr Campbell said the chairwoman asked Bermuda to put its concerns in writing.
He added: “The Minister of Finance spoke with Ms Petkova and her technical team on the telephone about two weeks ago and sought her support for advancing this amendment before July 1.
“I understand from the Minister of Finance that the discussion was very productive and following the telephone call the Minister of Finance wrote to her formally and presented her with a draft Bill for her consideration.
“The minister also wrote to Pierre Moscovici, the chairman of the EU commission, seeking his support.
“Last week the minister spoke with Mr Moscovici by telephone and again, I understand from the minister, that the conversation was very positive.”
The Senate heard Mr Dickinson also informed Robert Jenrick, the UK’s Exchequer Secretary to the Treasury, of Bermuda’s intention to amend the legislation to create a tax residency exemption.
Mr Campbell said a draft Bill and reasons for the amendment were submitted to the Forum on Harmful Tax Practices for review and the results would be released to the public after notice from the Organisation for Economic Co-operation and Development.
He advised senators that the amendments were in line with FHTP standards.
Nick Kempe, the Opposition One Bermuda Alliance leader in the Senate, said that Mr Campbell’s statement indicated “many areas where our legislation is not in line with other jurisdictions”.
He added: “There’s a clear commercial disadvantage versus our competitors that’s come because of this and the Minister of Finance, I’m quoting senator Campbell, complained about a lack of a level playing field.
“That lack of a level playing field was self-imposed.”
Mr Kempe claimed that if Bermuda had “co-operated” and “co-ordinated” with other affected jurisdictions “instead of hiding our efforts in a shroud of secrecy and passing our Bill at the last minute in December” the situation could have been avoided.
He added: “We support the actual wording of the legislation to remove some of these disadvantages but we find it regrettable that we’ve ended up in this situation to begin with.”
James Jardine, an independent senator, said: “I am pleased that this amendment is coming through and wholeheartedly support it.
“I’m also pleased to hear that Government is looking at other territories’ and Crown Dependencies’ legislation to ensure that Bermuda continues to be on a level playing field.”