3 October 2023News

Corporation tax would be ‘fundamental change’ for Bermuda

A corporation tax would be the most fundamental change in Bermuda’s taxation system in its modern history, according to the island’s Premier.

David Burt, who is also the finance minister, said the change could make the island more competitive if it was able to reduce or eliminate customs duties or employer’s portions of payroll tax.

Speaking in an interview with Intelligent Insurer and Bermuda:Re+ILS as he embarked on a visit to the European Union and the Organisation of Economic Cooperation and Development yesterday, Burt said the island’s consultations on the corporation tax were on track and if such a tax was implemented, it was still likely to happen in 2025.

Bermuda launched a consultation on the Corporation tax in August and is now in the second phase of discussions following the appointment of a Tax Reform Commission chaired by former PwC Bermuda managing partner Darren Johnston.

The likely introduction of the tax on companies and subsidiaries of multinationals with annual revenues of more than €750 million euros comes because of the OECD’s move to implement a 15% global minimum tax.

Under the terms of the plan, if a country does not collect the tax, another country where the multinational has operations can do so. Bermuda does not currently tax corporate profits.

“Bermuda has a record of making sure that we keep our commitments and the implementation timelines will be determined on what is agreed by the OECD,” Burt said of the 2025 deadline.  “At this point in time, I believe that is the date and unless that moves, Bermuda is prepared to honour its commitments.”

Burt said the process is being managed in close consultation with industry, with a second consultation paper due to be issued this month. He said working with industry was vital because it had deeper expertise in this kind of taxation than the Government does.

“They can help us to shape and to make sure that the corporate income tax implementation can work,” he said. “Tax is very complex. This global tax agreement is very complex. And we want to ensure that in the implementation and in meeting the rules, that Bermuda  can remain competitive. And we believe that we will certainly achieve that.”

He agreed that one of the challenges of the tax was that Government revenues could be uneven given the volatility of some re/insurers’ earnings, especially those in the property catastrophe segment of the market. Re/insurers are likely to make up the majority of companies liable to pay the tax.

He said Johnston’s Tax Reform Commission would be looking at the economic modelling and projections which have been done by the team working on the global minimum tax.

“Their look will be to, number one, see what the massive changes are needed in our existing tax structure to make sure they're compliant with the global minimum tax and to understand how to adjust what we have already to ensure that Bermuda is competitive,” he said.

“There's a lot to get to, there's a lot in this is, you know, this is going to be the most fundamental change in taxation in Bermuda's modern history. And there's incredible opportunities. But the key focus for us is to ensure that Bermuda remains competitive.  You will know that at some point in time in the past, financial planning and other things were more relevant. Nowadays, a lot of insurers are likely to be taxpayers in other jurisdictions.”

Burt was speaking the day after Dutch life insurance giant Aegon formalised its move to Bermuda, a re-domiciliation which was forced after it sold its life insurance business in the Netherlands and could no longer be regulated by the Dutch insurance authorities. However, it will remain tax resident in the Netherlands following the move.

“This is really about the regulatory expertise of the Bermuda Monetary Authority, the way that persons feel that they can organise their corporate affairs, and also their insurance operations under the remit of the Bermuda Monetary Authority.

“And that is where we are seeing that particular growth,” he said. “From that perspective, it's really about the sound regulatory environment, the stable regulatory environment, which we think will stand Bermuda in good stead as we move forward. When jurisdictional issues that are related to tax are less important, you have to focus on other matters. So this is about making sure that we remain on point at the BMA and in other spaces.”

Burt told the Bermuda Parliament on Friday that there may be scope to reform Customs Duty or the employer’s share of payroll tax, which would ease the cost of living and make Bermuda more competitive.

“This can be a significant matter when the biggest challenge that persons have in Bermuda is the cost of living, and also a company’s cost of doing business,” he said. “So I think that we are positioned well for growth, but there is a way to go until implementation and there's a lot of work to do to get it right.

“But I think what persons in industry can count on is that the Government will continue to be collaborative, as we've demonstrated in the introduction of the consultation paper and with the end goal of Bermuda remaining economically competitive.”

Burt also discussed the recent cyberattack on the Bermuda Government’s IT systems, which resulted in its entire network being shut down.

“The Government of Bermuda has faced these threats before, but this was a particularly sophisticated and direct attack, which did have a significant impact on a large number of government systems,” he said.

“Not all government systems were impacted. Our accounting systems, our tax systems, our driver's licence and vehicle registration systems and others were not impacted, but all systems were taken offline as a precaution to ensure that we could isolate any particular threat and prevent spread.

“As of this morning, critical emails are up, phone services are back, persons are able to log back into their computers, they'll have shared drives and be able to bring up old documents and continue to work.”

He added: “Of course, the impact is certainly felt more strongly as the government has put significant investments into IT and digitalisation over the past few years. And that means that there are a lot more paperless and electronic only environments.

“it's something that a lot of jurisdictions and companies have had to deal with, but fortunately for Bermuda, there's a lot of expertise around. And we continue to work through the particular challenges that have been posed by this. It is another challenge that governments have had to face.”

Asked if the Government had cyberattack insurance, Burt said: “I think we are well prepared to respond to these things. And we're not going to discuss the specifics of what we have or who we have in there.”

Burt also said investigations into the cause of the attack were continuing, but stood by his comments when the attack was first revealed, when he said it was believed it had emanated from Russia.

He said: “We're not going to discuss specific operational details as there is an ongoing investigation, but I stand by the statements that I made last Thursday.”