“We applaud the government’s legislative reform package, and
its commitment to ensuring clients and markets worldwide continue
to benefit from Bermuda’s financial capacity.”
Albert Benchimol, ABIR
efficient and fair implementation of standards and to avoid any
“ABIR’s members are good corporate citizens in Bermuda and in the
worldwide markets they serve and are prepared to continue to address
the world’s critical risk needs,” says Huff.
However, concern remains that there is no guarantee that the EU
rules as they are currently constructed are set in stone. The decision
about whether and how to change requirements for economic
substance, and how these rules are applied with regard to third
countries like Bermuda, is one for the European Council, taken by
all EU member states.
In theory, the Council could change its rules at any time, depending
on the policy prerogatives of the EU rulemakers and changes in tax
practices. Nobody in Bermuda knows if and when that might happen,
how often the rules could be reviewed or how they might evolve
in the future.
An EU official says the criteria used to establish the EU’s list of noncooperative
jurisdictions were decided in 2016 and insisted there are no
plans to change them. “However, some criteria are still being reviewed
and/or specified,” the official says.
One Bermuda-based lawyer says: “The EU’s principles will certainly
change over time, for tax reasons or other reasons. But the government
of Bermuda will remain in close dialogue with the EU, so I am confident
that when the EU makes any changes which will impact Bermuda, the
jurisdiction should be able to adapt quickly to address those changes.”
The nightmare scenario would be if the US decided to insist on
offshore financial centres complying with its regulations, as the EU
has done, giving Bermuda and others the problem of adhering to two
different sets of regulations. But this is unlikely, says Thomas Dawson,
partner at McDermott Will & Emery in New York.
“US states do not have economic substance requirements for
companies incorporated in their states,” Dawson says. “Think Delaware
and the more than a million companies incorporated there, but with
headquarters, operations and people located elsewhere.
“This is also true for re/insurers. So, it would be difficult for
any US state or US insurance regulator to insist on local presence/
related powers created by the ESA, meaning information provided
to the registrar can be shared with other jurisdictions, under the Tax
Information Exchange Agreement Act 2005.
Under the terms of the act, insurers must be managed and directed in
Bermuda, with a significant physical presence on the Island, including
employing qualified Bermudans in a full-time capacity. They must
also conduct their core income-generating activities in Bermuda and
incur adequate operating expenditure on the Island.
Benchimol says: “As the global centre of risk transfer, ABIR believes
Bermuda’s international business sector meets or exceeds worldwide
requirements. We applaud the government’s legislative reform
package which further enhances that framework, and its commitment
to ensuring clients and markets worldwide continue to benefit from
Bermuda’s financial capacity and leading risk management expertise.”
Although the content of Bermuda’s economic substance regime
has been approved, the EU is still reviewing the monitoring mechanisms
by which compliance with the legislation is assessed. The EU is expected
to make a decision about the worthiness of its monitoring structures
The assessment will involve the examination of the registrar’s
resources and methodology, says finance minister Dickinson. “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,” he told the House.
Doing the right thing
In recent months Bermuda’s Ministry of Finance has turned its
attention to other areas of the Island’s legislative framework requiring
“In order to harmonise 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,” Dickinson
John Huff, president and chief executive officer of ABIR, says
his group would continue to work with the BMA and the Bermuda
government on the ESA regulatory guidance, both to ensure