Tax reset and its many potential benefits
Dear Readers: this might not normally be the purview of a personal finance column. However, the proposed changes in our more than 150-year-old current Bermuda tax laws represent what could be a positive, powerful reset of the way Bermuda’s conducts international business, enhances our already superb reputation, taxes our community equitably, helps reduce our major debt liability, and potentially balances Government’s budget, all of which decisions will directly and indirectly flow through the island to fundamentally and financially impact the lives of our community.
It is revolutionary.
The Bermuda Government Public Consultation Paper is a complex, complicated document prepared with the support of the International Tax Working Group formed by the Ministry of Finance.
The Government stated when launching this major initiative to support changes in international tax rules per the Organisation for Economic Cooperation and Development and relative to Bermuda that the Tax Working Group consisted of experienced professional specialists in international tax and representatives of various bodies.
We can surmise that the group comprised professionals in global auditing and accounting firms, attorneys, Bermuda civil servants experienced in international tax and finance matters, Bermuda Monetary Authority specialised personnel, CEOs of multinational firms, leaders of the Association of Bermuda Insurers and Reinsurers, the Association of Bermuda International Companies and Bermuda International Long Term Insurers and Reinsurers, and many more individuals who volunteered their time in Bermuda.
Unfortunately, we have no knowledge of most of these individuals and firms’ names that volunteered their expertise and time to contribute to the content of the paper.
Bermuda owes every one of them a very huge thank you.
Thus, it was highly comforting to see the photograph of respected leaders in finance and insurance, standing alongside David Burt, the Premier, when he announced last week the Government was considering tax reform, including Cheryl-Ann Lister, Bermuda Acting Financial Secretary; John Huff, CEO of Abir; Wayne Smith, executive director of Abic; and Christine Patton, executive director of Biltir.
The public consultation paper presented a concise explanation of the change process, ending with a group of questions and asking for comments.
Consultation paper responses should be submitted by e-mail to: email@example.com. Respondents should include “Introduction of Corporate Income Tax in Bermuda” in the subject box.
Each, and everyone of us as our public duty should review these proposed changes because in the end, the outcome will affect us all. You should feel free to respond to the questions even if you are not familiar with these tax concepts – this is a good way to ask for additional information.
Why is this happening now?
The 60-year old OECD is a powerful international organisation that works to build better policies for better lives. Their goal is to shape global policies that foster prosperity, equality, opportunity and wellbeing for all.
Together with governments, policymakers and citizens, the OECD works on establishing evidence-based international standards and finding solutions to a range of social, economic, and environmental challenges.
From improving economic performance and creating jobs to fostering strong education and fighting international tax evasion, the OECD provides a unique forum and knowledge hub for data and analysis, exchange of experiences, best-practice sharing, and advice on public policies and international standard-setting.
The OECD sets the rules governing international taxation for multinationals (MNEs) through the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, a Model Tax Convention and country-by-country reporting rules.
In October 2021, over 135 OECD Inclusive Framework members, including Bermuda, agreed on a two-pillar solution to reform international tax rules to ensure that large, multinational groups pay a minimum level of income tax, an effective tax rate of at least 15 per cent.
In general, Pillar One proposed to allocate multinational profits (for taxing purposes) to countries where they do business, by a formula, including to markets which multinationals sell into without a physical presence.
As part of Pillar Two, finance officials from these member countries agreed on plans for a new international taxation policy known as the global minimum corporate tax.
Key detail: all the major economies in the Inclusive Framework agreed to pass national laws that would require corporations to pay at least 15 per cent income tax in the countries where they operate.
Every jurisdiction in the Inclusive Framework would now be on a level playing field.
In July 2023, following onward from these ground-breaking decisions, members of the OECD/G20 delivered a package of implementation procedures in an Outcome Statement. the most important of which is the text of the Multilateral Convention (MLC).
The MLC sets out substantial features, among them, allowing domestic taxing rights, mechanisms for relieving double taxation, provisions designed to address the unique circumstances of developing Inclusive Framework members.
The MLC will be opened in the second half of 2023 and a signing ceremony will be organised by year end 2023, with the objective of enabling the MLC to enter into force in 2025, allowing for the domestic consultation, legislative, and administrative processes applicable in each jurisdiction.
This is where Bermuda is now.
The sheer amount of work, hours of consultations, considerations to realigning our entire tax regime, preparations to tailor the OECD MLC to meet Bermuda’s needs while adhering to the agreed MLC policy framework is absolutely staggering with more yet to be accomplished.
There are still many questions to ask and be answered.
Readers, be involved, do your part and take the time to send in your Consultation Paper Response. See details here and under “Related Media” on this web page, where there is also a full list of the members of the OECD/G20 Inclusive Framework on BEPS (Base Erosion and Profit Shifting).
Next week: part two
• Martha Harris Myron is a native Bermuda/US islander, author, independent finance columnist, YouTube creator, Master of Laws in International Taxation and Financial Services SCL and a former international financial planner (CPA, CFP®, TEP)