EU blacklist: Bermuda’s getting out fast

On March 12, the EU updated its list of non-cooperative tax jurisdictions, and Bermuda found itself on the so-called ‘blacklist’—a situation the government was seeking to address as quickly as possible as Bermuda:Re+ILS went to press.

Premier David Burt, who took personal responsibility for an error that led to Bermuda’s being included on the list, was leading a team of officials to Europe to speak urgently with various government tax officials .

Ten jurisdictions—including Bermuda—had previously agreed to modify their tax regimes to comply with rules set by the EU Code of Conduct Group in December 2017, relating to tax transparency, fair taxation, and the commitment to anti-base erosion and profit shifting (BEPS) measures. The list of jurisdictions that have made commitments has often been referred to as the ‘grey list’.

The other formerly grey-listed jurisdictions now back on the blacklist include Aruba, Barbados, Belize, Dominica, Fiji, Marshall Islands, Oman, United Arab Emirates, and Vanuatu.

In a press conference following the announcement of the EU’s revised list, Burt expressed his wish to assure the people of Bermuda that the government does not expect any sanctions to be levied against the Island.

A technical omission

In a statement to Bermuda’s House of Assembly, Burt blamed the EU’s placement of Bermuda on the blacklist on a “minor technical omission in our regulations”—in effect, it was human error.

He said that one paragraph, which appeared to be a duplication in almost identical language in a draft, was “unintentionally omitted”. He added that despite the omission being discovered and immediately addressed, the reinsertion of the omitted line “appears not to have been good enough for the EU”.

Burt, who was also Minister of Finance until late last year, stressed that the Bermuda government had spent almost two years attempting to address what he called “external threats to our jurisdictional operations in the area of financial services”.

A big part of this was dealing with the EU Commission’s assessment of countries based on their tax transparency, good governance and real economic activity—their economic substance.

“During my tenure as Minister of Finance and since then, we have been forced to sacrifice many domestic priorities to meet the requirements of, first, an assessment by the Caribbean Financial Action Task Force and most recently the EU’s requirements on economic substance,” he said.

He noted that the government has been tasked with considering and passing almost 50 pieces of legislation or other statutory instruments in support of both these efforts.

“This has taxed the operations of several ministries and departments within government and has incurred numerous late nights and long weekends of detailed drafting and policy review,” he said.

He went on to explain the detail behind this “minor technical omission” and the omission of the paragraph, which led to Bermuda now being blacklisted.

“This issue is one for which we must take responsibility and as the leader of this government, in the legislature to whom the government I lead is collectively responsible, I have no difficulty in saying: ‘the buck stops at my desk’.”

A temporary challenge

Burt stressed that he believes that Bermuda’s inclusion on the EU’s list of non-cooperative tax jurisdictions is only temporary.

“Bermuda was compliant then and remains so now. This is a technical issue which has already been remedied,” he said.

He added that within a few months Bermuda would have the opportunity to be removed from the list.

“I have every expectation that this will be done as our existing laws meet the standard required by the EU. This is a view shared by Her Majesty’s Treasury in London which has also expressed to the Commission and publicly that it expects Bermuda to be removed from this list based on our clear compliance with the required standard,” he said.

On March 25, the government of Bermuda announced that Burt, along with minister of finance Curtis Dickinson, led a team to Europe for a round of meetings aimed at laying the groundwork for removing Bermuda from the blacklist.

The team expected to meet various tax officials, including Robert Jenrick MP, exchequer secretary to the treasury in London, and in Brussels with Pierre Moscovici, European commissioner for economic and financial affairs, taxation and customs as well as ambassador Luminita Odobescu, permanent representative of Romania to the EU. It was to hold further discussions with tax officials in France and Germany, as well as with the leadership of the EU’s Code of Conduct Group in Brussels.

“It is encouraging that EU leaders in this area have been receptive to our requests and I expect that this level of engagement will provide the ideal opportunity to make the case for Bermuda’s compliance with EU standards,” said Burt.

“We have wasted no time setting about this important task. Our economic substance regime is the law of the land today and there are opportunities for growth in existing sectors and the creation of additional economic activity in Bermuda.

“Our time in Europe will see us engage with the right people who advise and make decisions on jurisdictional issues like this. We believe we have a strong case to advance and we will do so directly.”

Bermuda’s importance to the EU

In December 2017, the council of the EU published a blacklist with the aim of cracking down on tax avoidance and addressing deficiencies in the tax systems of non-EU jurisdictions.

In terms of the impact caused by the EU’s blacklist, there are concerns over whether reputations will be damaged or that jurisdictions could even face sanctions from the EU and its individual member states. Beyond being named, however, the jurisdictions have faced few, if any consequences from the blacklist—yet.

Furthermore, some argue that there are inconsistencies in how the EU has curated its blacklist, particularly with jurisdictions that fall within European borders. In November 2017, Oxfam published a report, Blacklist or whitewash?, which showed that, according to the EU’s own criteria, four countries within the EU should be blacklisted but are not. These countries are Ireland, Luxembourg, the Netherlands, and Malta.

By taking aim at countries outside the EU, Oxfam suggested, this step has strongly harmed the credibility of the process—with Ireland, Luxembourg and the Netherlands being among the most powerful tax havens in the world, enabling the largest corporations to pay minimal tax.

A wide range of industry groups on Bermuda, including the Association of Bermuda Insurers & Reinsurers (ABIR), have pledged their support to efforts by the Bermuda government to get the country removed from the EU’s blacklist as quickly as possible.

John Huff, president and CEO of ABIR, suggested that while there would be no immediate or tangible impact on re/insurers in Bermuda it was important the status was changed as soon as possible, and for the EU to recognise the importance of Bermuda’s re/insurers to the EU.

“We have every hope today’s EU determination will prove temporary,” says Huff.

“The ABIR understands there is no immediate tangible impact to Bermuda or its markets, but we are appreciative of the Bermuda government’s commitment to remedy the designation as soon as possible. There is bipartisan and industry consensus in Bermuda to meet international standards.

“The Bermuda re/insurance market is a valuable partner in the EU and has paid over $72 billion to EU policyholders and cedants over the past 20 years. ABIR is confident that policymakers will act in the best interests of consumers to ensure continued level-playing-field access to our market’s claims-paying capital and risk management expertise.”

A united front

Other bodies echoed these sentiments. In a show of unity on the Island, a number of other groups and representative bodies came out in support of the country’s regulatory regime and said they would work to change the EU status.

“Bermuda is a world-respected platform for business that has always adhered to the gold standard,” said Roland Andy Burrows, CEO of the Bermuda Business Development Agency (BDA).

“We stand firmly behind that reputation, and we commend our government’s consultative approach with the EU to date. Our industry stakeholders are committed to working with the government and regulators to ensure Bermuda is recognised as fully compliant. We look forward to a positive result as soon as possible.”

Sylvia Oliveira, director of Bermuda International Long Term Insurers & Reinsurers (BILTIR), added: “The government of Bermuda assures us it is working at the highest levels to rectify the unfortunate placement of Bermuda on the EU’s list of non-cooperative jurisdictions.

“As a staunch member of Bermuda’s global business market, BILTIR stands firmly behind the Island’s top-tier reputation. Our collective view is that Bermuda is a leader in tax transparency and compliance and continues to be a great place to do business.”

Kathleen Bibbings, president of the Bermuda Insurance Management Association (BIMA), said: “Bermuda’s captive insurance sector, like other industry partners throughout our market, has a long, proven track record of cooperation and transparency, and as a jurisdiction, we’ll work with the EU to meet requirements.

“We remain confident that Bermuda’s full compliance will be confirmed shortly.”

Patrick Tannock, chair of the Association of Bermuda International Companies (ABIC), added: “ABIC has been supportive throughout this process and is committed to continuing to work collaboratively with other industry groups to support the Bermuda government in its efforts to meet EU requirements.”