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House: economic substance amendment passes

Curtis Dickinson, the Minister of Finance (File photograph by Blaire Simmons)

An amendment to economic substance laws was passed in Parliament on Friday.

The Economic Substance Amendment Act 2019 was passed without objection by MPs in the House of Assembly.

The Bill will mean that entities that are tax resident in another jurisdiction will not fall within the scope of the regulations, provided that they are not on the EU “blacklist” of noncooperative jurisdictions for tax purposes.

Non-resident entities that conduct relevant business under the Act will need to state where they claim to have tax residency as well as provide supporting evidence.

The Economic Substance Act 2018 becomes applicable to existing entities on July 1. The legislation took effect for new companies last December 31.

The amendment was tabled and approved in the same session of Parliament.

Dennis Lister, the Speaker of the House, said that he did not want to see the practice happen regularly.

Curtis Dickinson, the Minister of Finance, said that the move was sometimes needed “in order to get the people’s business done in a timely fashion to minimise harm”.

He added: “In this instance, we sought to do as much.”

Mr Dickinson said that the issue was one of “national urgency”.

He added: “If we don’t do something, the potential ramifications for the Bermudian people and the Bermudian economy are significant.”

Mr Dickinson told MPs that the absence of the exemption in Bermuda’s legislation put the country “at a serious commercial disadvantage relative to all of our competitors”.

He added there was a “serious risk that up to 20 per cent of Bermuda’s registered entities” might move to a competitive jurisdiction if the exemption was not put in place.

Leah Scott, the Deputy Leader of the Opposition, agreed that the amendment was needed.

But she added: “We’re playing catch up to try and get ahead.”

Ms Scott said that Bermuda should never have found itself on the European Union’s tax blacklist.

She added that if the person responsible for the blacklisting had worked in the private sector “they would have been walked out the door”.

Ms Scott said that is was “unacceptable” that Bermuda was “on the back foot because of a human mistake”.

She added: “We have jurisdictions that have legislation that is effective. We have legislation that is onerous and is nowhere near what is in the other jurisdictions.”

Patricia Gordon-Pamplin said that it was important that Bermuda accept “our share of responsibility” for the situation it is in.

The One Bermuda Alliance MP added: “We have to stop overlooking incompetence when we see it and call it for what it is — because our jurisdiction is being harmed as a result of the things that have been done or overlooked.

“We should be saying this is not acceptable.”

Michael Scott disagreed that Bermuda is trying to “claw our way back”.

The Progressive Labour Party backbencher said: “We’ve never had to scramble back.”

He added that the “legislative glitching” which caused Bermuda to be placed on the blacklist was a “rare occurrence”.

Mr Scott said: “The speed with which we have recovered is testament to the strength of the jurisdiction and our prowess.”

David Burt, the Premier, said that Bermuda would have to be responsive to regulatory shifts.

He added: “As global rules change, we will have to change as well.”

Mr Burt said that the Government would have liked to bring the amendment earlier, but that it was not possible due to the timing of an Organisation for Economic Cooperation and Development forum.

He added: “It is that simple.”

Mr Dickinson said the two-month blacklisting was “clearly not ideal” and no one wanted to experience it again.

He told the House: “We have to decide as a country whether we are going to move beyond it and figure out how we move forward in a constructive way, or whether we’re going to allow this to be the equivalent of a shackle around our ankles.”

Mr Dickinson said later that he made commitments to the industries that he would make relevant amendments to the economic substance legislation “to ensure that Bermuda is not placed at a competitive disadvantage”.

He added: “The process for us making amendments to this legislation has been divided up into two general phases.

“The first phase is to address those things that needed immediate fixing, and the second being all of the other issues, in due course we will work towards resolving those differences.”