Bermuda’s decision to sign up to a country-by-country reporting agreement for multinational companies could be used to target shell companies using the island for tax avoidance.

Bradley Kading, president and executive director of the Association of Bermuda Insurers and Reinsurers, said: “The main impact of the country by country reporting will likely be to call attention to shell companies formed by non-Bermuda multinationals in which little on the ground economic activity takes place in Bermuda.

“The documentation and reporting will likely lead to more and more non-Bermudian multinational companies deciding either to close a Bermuda shell company or add economic substance to that company in order to meet expectations of economic activity tied to the company.”

But Mr Kading pointed out that Abir estimates that Bermuda is host to only 2 per cent of the companies incorporated in leading British territories.

He said: “Bermuda has never been the shell company domicile of choice for obvious reasons.

“Bermuda has collected beneficial ownership information for 70 years, has never been a bank secrecy jurisdiction and has actively exchanged tax information with all the G20 nations and all our leading trading partners.

“Bermuda regularly shares information with tax, regulatory and law enforcement authorities. This is not a place you go to hide money from a tax collector.”

And he added that Abir “fully support” the decision to adopt the Organisation for Economic Cooperation and Development reporting standards.

Mr Kading said: “Abir members are mostly Bermuda multinationals with their ultimate holding companies and important legal entities here.”

He was speaking after Bob Richards, the Minister of Finance, said Bermuda had fallen in line with the OECD reporting regime.

The move means companies with international operations will have to file detailed country-by-country reports by the end of next year.

The country-by-country reporting scheme follows Bermuda’s decision two years ago to adopt the OECD’s automatic tax information exchange regime, the common reporting standard.

Mr Richards said: “We were one of the first jurisdictions in the world to sign up to the common reporting standard in 2014 as an early adopter of CRS and so I am proud Bermuda is again setting an example in adopting the country-by-country reporting regime without hesitation.

“Our government is committed to upholding international best practice in tax transparency.”

The country-by-country declaration will force multinational firms with headquarters in Bermuda to file financial information on a country basis.

The start date is in line with the UK, France and other countries.

Mr Richards said: “It’s going to affect all companies, whether they have a physical presence here or not. Those companies will have to report country by country.

“For the companies Mr Kading represents, the big reinsurance companies, they have very large physical footprints here, they pay taxes and fill in forms. Most of them are global and they do file taxes in a lot of different places.

“It will be something entirely new for holding companies and that’s the context in which Mr Kading was speaking. The ones without a physical presence or virtually no physical presence, it will be a departure for them.

“The whole idea of country-by-country reporting is for nobody to be able to hide and let me say the holding companies we have in Bermuda, they don’t hide now.

“If a competent authority in, say, France want to know what activity is going on with a Bermudian-based company, there’s a protocol for them to find that information by way of the tax information exchange agreement we have.”

Mr Kading added: “Bermuda can describe itself as a jurisdiction that facilitates pass-through taxation of income to the beneficial owners in the jurisdictions that will ultimately claim tax income under their laws.

“Its commitment is to be at the forefront of transparency and co-operation in helping other jurisdictions claim revenue they believe their multinational taxpayers are obligated to pay.”

He added: “Bermuda is legally bound to help other nations collect taxes which they think are due to them.”