Business interests welcome tax assurance extension
Just over a week after Paula Cox assumed the role of Premier, the Governor delivered the Speech from the Throne opening the new session of Parliament and setting out the initiatives that our Government has highlighted as matters of importance for the upcoming year.
One matter that was addressed had been talked about in international business circles for some time the status of the assurances granted to exempted companies, partnerships and unit trust schemes pursuant to the Exempted Undertakings (Tax Protection) Act 1966 (the “Act”).
In March 1966, the Government of Bermuda enacted legislation that authorised the Minister of Finance to grant, on application by an exempted undertaking (which includes an exempted company), an assurance that in the event the Government of Bermuda enacted legislation imposing tax computed on profits or income or computed on any capital asset, gain or appreciation, any such tax would not be applicable to such exempted undertaking.
Further, this assurance extended to any tax in the nature of estate duty or inheritance tax that would otherwise be applicable to the shares, debentures or other obligations of such an exempted undertaking.
The initial term of this exemption was 30 years; however, in 1973 this was extended to 40 years and in 1987 extended again to 50 years from the date the Act was operative.
As it currently stands, the assurances granted under the Act are due to expire on 28 March 2016.
Companies regularly issue equity and debt instruments with maturity periods of ten years or more, so in recent years, exempted companies issuing equity and debt instruments maturing after 28 March 2016 have had to consider, and in some cases disclose to potential purchasers of such instruments, the uncertainty of their tax position in Bermuda after such date.
In what must be seen as an important step by the Cox Government to reassure the international business community and potential investors in Bermuda that this Government recognises the importance of international business to Bermuda, the Government has pledged to adopt legislation amending the Act to extend the period for which exempted undertakings will be protected from tax computed on profits or income or computed on any capital asset, gain or appreciation to the year 2035.
What does this mean in practice? In reality, the assurance given under the Act is a promise for the future, as, at the moment, there are no taxes imposed on profits, income or capital gains or appreciation in Bermuda.
What this extension will do, hopefully, is provide some comfort to exempted companies and potential investors in Bermuda that, notwithstanding any policy shifts in response to economic challenges in the near future, their tax position in Bermuda is fixed for at least the next 25 years.
Attorney Christopher Brough is a member of the Corporate and Commercial Practice Group at Appleby. A copy of Mr. Brough's column can be obtained on the Appleby website at www.applebyglobal.com.
This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.