Efforts to align the island’s economic substance requirements with other low-tax jurisdictions have been welcomed by the business world.

Will McCallum, a managing director and head of tax at KPMG Bermuda, said it was important that competing countries operated on a level playing field.

Mr McCallum admitted that there was still uncertainty after the legislation was implemented for existing entities in July, but that the professional services industry was in a much “happier space” than earlier this year.

He said the Economic Substance Amendment Act 2019, passed by Government in June, was a “total game-changer”.

It meant that entities tax resident in another jurisdiction did 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.

Mr McCallum said last week: “Without that non-residency exception, there were a number of entities that were incorporated in Bermuda but tax resident elsewhere that would have been incredibly challenged to meet the economic substance requirements.

“Government has made a lot of informal statements in public about further efforts to better align our legislation with legislation passed in other jurisdictions, which would be welcome as well.”

He added: “It has been a much brighter, happier space, I would say, in the past couple of months than it was in March, April or May.”

Mr McCallum said: “I think you’ll find people feel a whole lot better about economic substance now than they did in certainly the spring and early summer.

“If we think about May 17 we were moved from the EU list of noncooperative tax jurisdictions, that was massive.

“The fact that within a month the Government instigated and completed an effort to change our legislation to include an exemption for non-resident entities, was massive.”

Mr McCallum said that perhaps thousands of entities on the register were “fundamentally impacted” by the non-residency exemption.

He acknowledged that there remained a “degree of uncertainty” around the requirements, which were introduced under EU rules designed to combat tax avoidance.

Economic substance includes physical presence, employees and revenue-generating activities.

The expert said that even the OECD was “not exactly certain” where lines will be drawn or how the regulations will be enforced.

Mr McCallum said KPMG had received calls from countries in Asia, the Middle East, northern Africa and Europe, as well as the US and Canada as entities tried to determine to what extent they meet Bermuda’s economic substance requirements.

He explained: “These are people who don’t understand our rules and need to, because they have entities affected by it.

“We’ve been very busy assisting entities, understanding the rules, looking at their specific facts and at least starting to help them understand — given that the goalposts are still moving a little — whether or not their facts support an assertion that they meet economic substance requirements.”

Mr McCallum said: “There are organisations that look at their presence in Bermuda or Cayman or BVI and they probably wouldn’t meet the substance requirements the way they are set up, they don’t really want to, they don’t really need to.

“In a lot of cases people have set up entities that have remained on the register but they weren’t really serving much of a purpose any more, the reason for their existence had diminished.

“In that kind of situation you’re not going to bend over backwards to meet the substance requirements, you’re just going to strike the entity.”

But he added: “There is a comfortingly high number of people who either meet the requirements today or might want to consider tweaks to the way they operate to meet that.

“At the other end of the spectrum is people who really have no possibility given their current structure, and in some cases no desire, to meet economic substance requirements in Bermuda.”

Mr McCallum said there had been a hope that Bermuda’s existing infrastructure would mean that the island might be a “net winner” in terms of company losses and gains.

But he added that the way in which the rules have been implemented in various jurisdictions meant that “there hasn’t been a mad run for the exits” elsewhere.

Mr McCallum said that he had “no doubt” the overall company count would fall in all of the affected jurisdictions but it was too early predict the impact.