Mr. Speaker, I rise to update this Honourable House on the work of the Organisation of Economic Cooperation and Development (“OECD”) Committee known as the Inclusive Framework on Base Erosion and Profit Shifting (“the Inclusive Framework on BEPS” or simply “the Inclusive Framework”).
Mr. Speaker, the G20 commissioned the OECD to address Base Erosion and Profit Shifting (BEPS) that had, in their view of the G20, increased because of the increased digitalization of the global economy. In their opinion, this made it harder for the tax administrations of countries to collect corporate income tax within their proper jurisdictions.
Mr. Speaker, in March 2018, the Inclusive Framework, working through its Task Force on the Digital Economy (TFDE), issued its Tax Challenges Arising from Digitalisation – Interim Report 2018 (the Interim Report) (OECD, 2018[2]) which recognised the need for a global solution. Work continued on this initiative, and in January 2019, members of the Inclusive Framework agreed to examine proposals in two pillars, which could form the basis for a consensus solution to the tax challenges arising from digitalisation.
Mr. Speaker, Pillar One is focused on nexus and appropriate profit allocation while the core aspect of Pillar Two relates to a global minimum corporate income tax, intended to address remaining BEPS issues.
Mr. Speaker, Bermuda has been an active Inclusive Framework member, working towards an appropriate outcome, which includes the essential elements in Pillar Two, as initially outlined in the Inclusive Framework’s thinking. This includes the notion that all jurisdictions should have the right to create tax systems which are appropriate for their economies, (whether or not such tax system includes or does not include a corporate income tax).
Mr. Speaker, G7 leaders met in early June 2021 in the UK, prior to the scheduled July 1st Inclusive Framework meeting. They agreed to a high-level Pillar Two framework, which included the establishment of a global minimum tax of at least 15%, to be applied on a country- by-country basis. The G7 urged the OECD and the Steering Group of the Inclusive Framework to endorse the G7 agreement and promote it to the members of the Inclusive Framework.
Mr. Speaker, on July 1, 2021, the Inclusive Framework met and 130 of its 139 members supported the high-levelPillar Two framework agreed to by the G7, and set a timeline, of October 2021, to create and finalise the technical details. Two of the outstanding nine members, indicated their support, in the days following the meeting.
Therefore 132 members currently support the July 1,2021 Inclusive Framework Statement.
Mr. Speaker, at the July 10, 2021, G20 Finance Ministers meeting, all G20 ministers endorsed the July 1st Statement of the Inclusive Framework. This agreement now establishes the basis for concluding the outstanding technical discussions.
Mr. Speaker, with respect to Pillar One, initial estimates conclude that approximately 80 multinational enterprises worldwide would qualify as in-scope of Pillar One, for purposes of being subject to partial profit re-allocation under the terms of the agreement described in the Inclusive framework public statement. The Pillar One agreements allow for an exclusion to apply to regulated financial services companies, and certain natural resources companies. The details of these exclusions will be determined in the upcoming technical phase of the negotiations.
Mr. Speaker, it is this technical phase, which will run from July to October, that all countries, including Bermuda, are now focused. Pillar Two will be central to our considerations. As we have in the past, the Ministry of Finance will continue to work closely with our industry stakeholders and other strategic partners, to advocate for technical details that are in Bermuda’s interests and seek to enhance Bermuda’s competitive position.
Mr. Speaker, I believe that it is important to reiterate certain key points of my press statement of July 2, 2021, the day following the publication of the Inclusive Framework statement. These remarks reinforce Bermuda’s position as a quality international financial centre, that appropriately plays it part on the global stage:
“As a country committed to transparency, cooperation, and high levels of compliance with international standards, the Government of Bermuda joined the Statement on a new framework for international taxation, arising from the OECD (‘Inclusive Framework’) meeting of July 1, 2021; and looks forward to supporting its ongoing technical discussions ahead of the meeting of G20 Finance Ministers meeting in October 2021.
Bermuda has been actively involved in ongoing discussions relating to this initiative to present positions that reflect the national interest and that of our various stakeholders. As part of that approach, we recognised the need to join with other members of the Inclusive Framework to reach this position supported by a significant majority of the membership.
We fully intend to remain an active participant in the ongoing work of the Inclusive Framework to complete the development of an appropriate plan. We have noted areas of concern at a technical and practical level, which we look forward to working to resolve constructively in the months ahead.”
Mr. Speaker, we will press on to do the work that is required for continued success. You will recall that, earlier this year, the Government tabled legislation to embody the next Tax Reform Commission. This was approved by the Legislature.
Mr. Speaker, in due course I will appoint persons to serve on the Tax Reform Commission, whose work will include various domestic issues; and, as appropriate, consideration and analysis of the finally agreed full package of the two BEPS Pillars. I therefore anticipate the Tax Reform Commission may not engage in the full scope of its work until after October 2021, when the technical aspects of the two BEPS Pillars are completed by the Inclusive Framework, and endorsed by the G20 meetings.
Mr. Speaker, it is important to highlight that the work of this Commission and subsequent decision-making, will reflect the culture of collaboration, innovation and communication which has contributed to the success of this jurisdiction. In conjunction with industry and other key strategic partners, Bermuda will continue to look for opportunities and employ strategies that are beneficial to individuals and businesses and allow for our island home to effectively compete in this ever-changing marketplace.
Thank you Mr. Speaker.