Mr. Speaker, I am pleased to advise this Honourable House and the listening public that the OECD’s Forum on Harmful Tax Practices (the “FHTP”) has formally reported its approval of Bermuda’s Economic Substance legislative framework, including the most recent amendments exempting entities that are engaged in a relevant activity but resident for tax purposes in another jurisdiction from economic substance requirements.
By way of background, Bermuda, the Crown Dependencies, and other British Overseas Territories have each developed economic substance legislative frameworks that were built upon principles provided by the FHTP, which falls under the OECD's Base Erosion and Profit Shifting (BEPS) Inclusive Framework, as well as those set forth in the European Union’s Code of Conduct Group (COCG)’s Scoping Paper regarding economic substance requirements. The recent public announcement by the OECD FHTP means that our legal framework is in line with OECD standards and that Bermuda is recognized as a non-harmful tax jurisdiction.
Mr. Speaker, as a matter of necessity, the Ministry of Finance has now turned its attention to other areas of our legislative framework that require amendment to ensure that our legislative framework is similar to that of other equivalent jurisdictions. Indeed, the EU and OECD recognize that the economic substance framework must reflect a level playing field across all equivalent jurisdictions. In order to harmonize our legislation with equivalent jurisdictions, Bermuda initiated preliminary discussions with the relevant EU and OECD officials in April and those engagements are continuing, both at the political and technical levels, to ensure that any proposed amendments are acceptable to both the EU and the OECD.
Mr. Speaker, following the assessment of the economic substance framework of all jurisdictions, the Ministry of Finance has now been able to do a jurisdictional comparative analysis to ensure:
- there is no economic disadvantage as a result of jurisdictional arbitrage; and
- any amendment meets the EU (COCG)/OECD standards.
Mr. Speaker, the most significant amendments under consideration are related to:
- Holding entities;
- Finance and leasing;
- Shipping; and
- Local companies;
The Ministry of Finance has consulted with specific stakeholders to ensure the best possible legislative outcome. The COCG has indicated that it will consider Bermuda’s proposed amendments in September, but must receive our submissions, i.e. draft Bills together with the explanatory memoranda, by 26th August. We will also submit our proposed amendments to the OECD FHTP for consideration by the 26th August for their review and consideration.
Mr. Speaker, another area that requires legislative amendments relates to collective investment vehicles. The BMA has been engaged in discussions with the EU Commission about the proposed legislative framework for CIVs. The CIV framework will also be considered by the COCG in September.
Mr. Speaker, the Economic Substance Act allows the Minister of Finance to give guidance on how the Act will be applied. To that end, the Ministry of Finance, through the Registrar of Companies, has adopted a two-phase approach in preparing guidance notes. In the first instance, the “Guidance Notes: General Principles” were developed and released, in draft, to industry stakeholders for feedback and comment. We have now begun the second phase, namely the development of industry specific guidance notes through a comprehensive engagement with sector specific professionals and experts. Specific guidance notes will be finalized once we have completed level setting legislative amendments.
Finally, Mr. Speaker, Honourable Members are advised that there are two parts to the OECD’s assessment of the economic substance regime of the 2.2. jurisdictions; namely the legislative framework and the effectiveness of the monitoring mechanism to ensure compliance with the legislation. As reported in my introductory remarks, Bermuda’s economic substance legislative framework was approved by the FHTP in the June legislative assessment. In December, the OECD will assess Bermuda’s effectiveness of the monitoring mechanism to ensure compliance with the legislative provisions. This assessment will involve the examination of the Registrar’s resources and methodology.
In order to achieve such effectiveness, the Registrar plans to utilise technology as well as additional staff to ensure the successful implementation of the ES legislative regime. To that end, the Registrar is in the process of developing an e-registry system that will allow him to collect and analyse economic substance information and to enforce economic substance requirements.
Mr. Speaker, in advance of the December 2019 Fully Equipped Monitoring Mechanism (FEMM) assessment by the FHTP, the Registrar has requested additional resources dedicated to compliance monitoring and enforcement. Such request was approved during the 2019/20 Budget Process. The recruitment process is underway, as is the development of the Registrar’s compliance mechanism for ES. The Registrar of Companies plans to leverage and incorporate its experience with performing risk-based corporate compliance monitoring into the mechanism for economic substance compliance.
Mr. Speaker, in closing I wish to personally thank the hard work and dedication of the various Government and Bermuda Monetary Authority officers for coordinating and managing the government’s responsibilities at home and abroad in relation to this initiative.
Thank you, Mr. Speaker