McMahon: captives will pass substance test
Bermuda's captive insurance industry will not fall foul of imminent new rules on economic substance, according to an industry executive.
The Economic Substance Act 2018 Bill is due to be tabled today in the House of Assembly.
The new law is designed to keep Bermuda off the European Union noncooperative jurisdictions list by addressing the European Code of Conduct's concerns over multinational corporations' use of offshore entities to avoid onshore taxes.
Tom McMahon, president of Citadel Management Bermuda Ltd, said: “Our expectation is that companies who are regulated under The Insurance Act will be deemed to be compliant for economic substance requirements. This will include captives.
“Although captives do outsource to management companies like ourselves, economic substance will cover outsourced services. It is an accepted practice even in the EU.”
A source who asked not to be named, who worked in the captive industry for four decades, told The Royal Gazette this week that captives may struggle to meet substance criteria, because underwriting decisions and claims tended not to be dealt with on the island.
Mr McMahon said: “Captives do have significant economic substance here — through the management services they outsource, in addition to the other fees that they pay.
“Also, in 99 per cent of cases, board meetings are held in Bermuda, insurance and reinsurance policies are issued out of Bermuda and decision-making is usually made in Bermuda.”