A majority of funds domiciled in Bermuda might be exempt from Swiss tax rules that require regulated funds doing European business through Swiss paying agents to disclose information about the savings income of European Union citizens.

Swiss tax authorities implemented the rules as part of the European Union Savings Directive that took effect on July 1.

While Bermuda was not among the jurisdictions included in the tax agreements, Switzerland?s application of its home rules in relation to the directive caught locally regulated funds that had Swiss paying agents within their scope.

By December, twenty-five funds representing a net asset value of almost $6 billion had discontinued in Bermuda as a result of unanticipated outcomes of the directive. Switzerland?s home rules were viewed as the most problematic.

However Minister of Finance Paula Cox announced yesterday that the Swiss had confirmed that funds exempted from Bermuda?s Collective Investment Scheme Regulations 1998 would be out of scope for the purposes of the EUSD in Switzerland.

Bermuda currently has 100 unregulated funds which are considered out of scope of the Swiss home rules. At year end, there were 1220 funds regulated under the CIS which would fall within the scope of the Swiss home rules.

However Government has now modified the CIS Regulations to clarify that non-retail funds offered exclusively to sophisticated investors could seek exemption from classification.

That means that some 800 of the 1200 regulated funds registered with the BMA will be able to apply to be exempted from regulation when the amended CIS regulations come into force at year-end.

Exemptions will only be granted if the funds meet minimum criteria including appointing an auditor, appointing a recognised fund administrator and reassigning a local representative in Bermuda.

Minister Paula Cox said that she was ?delighted? with the positive outcome for Bermuda?s fund industry.

?This outcome levels the playing field for Bermuda domiciled fund in a fiercely competitive global arena. It means that these funds may continue with their European business through Swiss paying agents with less disruption,? she said.

Bermuda?s fund business has grown from $46 billion dollars under management in 2000 to $178.58 billion under management in 2005. The 25 funds that left the Island as a result of the problems created by the EU Directive, represented a net asset value of $5.7 billion.

Opposition leader and shadow finance minister Grant Gibbons deemed the Swiss news ?a positive step? which ?goes some way to addressing the Swiss problem which was the most damaging in terms of fallout from the EU Savings Directive for the fund industry.?

?Clearly a lot of the damage has been done and it is difficult to say whether any funds that did leave Bermuda will come back or whether this will be sufficient to completely lift the uncertainty that was hanging over the Bermuda fund industry since July 1,? he said.

He adds however that the Swiss home rules are not the only ones causing problems for funds. In fact, the directive has been a boost for the Cayman Islands which has seen its fund sector grow at the expense of jurisdictions outside of the directive such as Bermuda.

As a third party to the tax savings agreements, it was able to negotiate to exempt approximately 98 percent of its funds from the reporting obligations of the directive. As such, it recently boasted that more than 80 funds have transferred to its shores, including some from Bermuda, since July 1.

The Ministry of Finance continues to review other issues related to the manner in which the Directive has been applied to other countries.