There has been a shift from pessimism to a feeling of optimism that Bermuda can advance and secure opportunities as a result of new economic substance regulations.Additionally, because the requirements driven by the OECD and European Union affect all the so-called “2.2 jurisdictions” at the same time, it is levelling the playing field, with Bermuda poised to benefit from a number of inherent strengths.Those were sentiments shared as a panel of Bermuda-based lawyers discussed economic substance rules during the TradeWinds International Shipping Forum.They described how clients have reacted to new economic substance regulations and common themes that have come up in discussions.The EU has targeted jurisdictions that facilitate offshore structures or arrangements aimed at attracting profits that do not reflect real economic activity in the jurisdiction. It is requiring offshore jurisdictions, commonly referred to as the 2.2 jurisdictions — a reference to a criteria in an EU document — to implement new economic substance requirements.At the heart of the matter is the requirement for registered entities that are not tax resident elsewhere, to have demonstrable economic substance in their offshore jurisdiction. This includes being managed and directed there, to have core income-generating activities performed in the jurisdiction, have adequate full-time employees, adequate physical presence and adequate operating expenditure in relation to a relevant activity.Companies will make an economic substance declaration annually, and in Bermuda that declaration will be monitored and enforced by the Registrar of Companies. The first filings are due next June. Non-compliance triggers penalty and exchange of information.Michael Frith, adviser to the Registrar of Companies, moderated the panel discussion and told the audience it is expected that most entities in Bermuda will be compliant. He asked the panel how clients have reacted to the regulations and what common themes they have seen.Brian Holdipp, senior associate with MJM Ltd, referred to the new regime as a paradigm shift. He said one theme was “a race to consolidate”.“We have seen companies either take steps to consolidate their group of companies outside Bermuda, or come in to Bermuda, we’ve seen continuations,” Mr Holdipp said.“The thinking behind that is that it would be easier to comply with economic substance in one jurisdiction than to comply in multiple 2.2 jurisdictions.”Other common themes revolved around adequacy and how that can be quantified, such as in terms of the number of full-time employees, or what is an adequate physical presence, or adequate operating expenditure on the island.Mr Holdipp said there had been some “easy wins”. Such as encouraging companies to hold more key decision-making board meetings in Bermuda as a first step.He said the adequacy question is evolving, and that more changes to the economic substance regime are coming which he believes will be make it “more business-friendly and practical to make it easier for companies to comply”.Another on the panel was Victor Richards, director at Conyers.He described how, before the legislation came out, the reaction to the economic substance moves was a mixture of pessimism, anger and a sprinkling of despair.He said since the legislation came out, at meetings with clients the pessimism has evolved to “something more optimistic”. Mr Richards said if there is equal clarity and application across the board, not just the 2.2 jurisdictions, but in other shipping-related regimes, then Bermuda is “in a really good position to capitalise on economic substance”. “This is going to be an opportunity for our jurisdiction,” he said, pointing out it is easier to fly to Bermuda than some of the other countries and jurisdictions.“The long-term ramifications of this regime are going to be good for the island. We have pretty good legal counsel, we have the infrastructure to be able to hold meetings here and attract people.”Jerome Wilson, partner at Appleby, was also on the panel. He said: “The question most asked is ‘What is it precisely we need to do?’ Clients want to be compliant, they want to follow the law, they want to do business.”The more information that comes out regarding the changes, the more comfortable his firm is getting with advising clients, he said. Mr Wilson added: “This is an opportunity for Bermuda if we grab the bull by the horns and take control of it. There is a tremendous opportunity for this to be a new era for the jurisdiction in terms of governance, how we advise clients and in terms of business being attracted to Bermuda.”He has not had a client say they were packing up and leaving Bermuda as a consequence of the economic substance requirements.Meanwhile, Mr Frith reiterated that the EU’s requirements were universal across the 2.2 jurisdictions, and not only to Bermuda.“That has been a positive. It means the very idea of packing up and leaving the jurisdiction, that’s really not an option. The whole point is it’s being applied universally across all jurisdictions,” he said.“The regulation has to be applied equally, [but] there is a fundamental fairness aspect of this that is missing, and that is that the EU hasn’t quite got around to pointing the flashlight quite as brightly on themselves and their member states. That said, there are some moves in that direction.”Because all the jurisdictions are complying with the economic substance requirements at the same time, he said it is eliminating the likelihood of jurisdictional arbitrage and instead was creating a level playing field.He added: “By the end of the year our regime will look more or less like the other 2.2 jurisdictions.“We are a good place to do business, we are close [to the US and Europe], the infrastructure is there and the intellectual capital is certainly here.”