Premier Burt Updates On Discussions With EU

Premier David Burt provided an update on the negotiations with the European Union over their concerns about ‘economic substance,’ saying that a “draft Bill and related regulations have been discussed extensively with the EU” and will be tabled in the House during this sitting.

Background

Last year the Council of the European Union named 17 jurisdictions as “non-cooperative tax jurisdictions”; with American Samoa, Bahrain, Barbados, Grenada, Guam, South Korea, Macau, Marshall Islands, Mongolia, Namibia, Palau, Panama, Saint Lucia, Samoa, Trinidad and Tobago, Tunisia and the United Arab Emirates included on the original list, with the list changing as nations meet commitments set by the EU.

Bermuda, while not listed as a “non-cooperative jurisdiction,” was placed on a secondary list along with over 60 other nations and territories.

Citing the “existence of tax regimes that facilitate offshore structures which attract profits without real economic activity,” the Council said “the following jurisdictions are committed to addressing the concerns relating to economic substance by 2018: Bermuda, Cayman Islands, Guernsey, Isle of Man, Jersey and Vanuatu.”

Premier’s Statement

Speaking in the House of Assembly on Friday [Nov 23], the Premier said, “I am pleased to provide this Honourable House with an update on the attempt by the EU to add to the list of non-cooperative tax jurisdictions low/no income tax jurisdictions [which the EU refer to as 2.2 jurisdictions] that do not comply with the EU demands for entities to have ‘substance’, that is to say, a physical presence and economic activity in the jurisdiction.

“In November 2017, Bermuda, along with a number of other jurisdictions, committed to address concerns raised by the EU Council regarding economic substance and to make legislative changes as appropriate.

“It remains the case that the 2.2 jurisdictions have until the end of 2018 to introduce legislation to address these concerns otherwise they face being put on an EU list of non-cooperative tax jurisdictions.

“Significant work has been carried out by the Government to date, in consultation with a focused group of industry practitioners across the relevant sectors, to develop legislation which incorporates the principles of the scoping paper into Bermuda’s framework.

“A draft Bill and related Regulations have been discussed extensively with the EU in a series of bilateral face to face technical level meetings, the most recent of which took place in late October in Brussels.

“The bilateral discussions and our draft legislation are in an advanced state and will be tabled for the consideration of Honourable Members during this sitting.

“EU Ministers have indicated that Bermuda has taken the right approach to engage and build substantial relationships with EU Member States directly, and many recognise our leadership in tax transparency.

“I will be in Europe next week to continue our efforts in Brussels, and this will incorporate fixing the site of Bermuda’s EU Representative Office in Brussels.

“We recognize that this legislation will change existing global business models, but in every test or trial there is opportunity. In the coming months it will be critical for Bermuda and her partners in industry to commit to supporting the remaining work on this initiative to ensure that Bermuda is able to emerge even stronger.

“We will work with local and international partners to not only meet this challenge, but to ensure that the opportunities that will arise from these changes are used to drive economic growth and job creation here in Bermuda.”

The Premier’s full statement follows below:

Mr. Speaker, I am pleased to provide this Honourable House with an update on the attempt by the EU to add to the list of non-cooperative tax jurisdictions low/no income tax jurisdictions [which the EU refer to as 2.2 jurisdictions] that do not comply with the EU demands for entities to have “substance”, that is to say, a physical presence and economic activity in the jurisdiction.

Mr. Speaker, in November 2017, Bermuda, along with a number of other jurisdictions, committed to address concerns raised by the EU Council regarding economic substance and to make legislative changes as appropriate.

Mr. Speaker, following various discussions with Bermuda and other countries in June 2018, the EU Code of Conduct Group [COCG] issued a scoping paper setting out the framework upon which legislation for economic substance should be based. On June 22, 2018 the EU Council of Finance Ministers, commonly known as ECOFIN, approved the EU Code of Conduct Group [COCG] scoping paper as the official document of ECOFIN [hereinafter referred to as “the 2.2 scoping paper”.

Mr. Speaker, the scoping paper identified a list of business activities in Bermuda, of both local and international business entities, to be targeted by the regime. These activities, referred to as “relevant activities”, include banking, distribution and service centers, financing, fund management, headquarters, insurance, intellectual property, leasing and shipping.

Mr. Speaker, it remains the case that the 2.2 jurisdictions have until the end of 2018 to introduce legislation to address these concerns otherwise they face being put on an EU list of non-cooperative tax jurisdictions.

Mr. Speaker, significant work has been carried out by the Government to date, in consultation with a focused group of industry practitioners across the relevant sectors, to develop legislation which incorporates the principles of the scoping paper into Bermuda’s framework.

Mr. Speaker, a draft Bill and related Regulations have been discussed extensively with the EU in a series of bilateral face to face technical level meetings, the most recent of which took place in late October in Brussels.

Mr. Speaker, the bilateral discussions and our draft legislation are in an advanced state and will be tabled for the consideration of Honourable Members during this sitting. Earlier this week, I provided a detailed note to our industry partners reiterating our position and confirming the ongoing efforts of technical officers and Ministers to address these issues.

Mr. Speaker, in addition to the technical level bilateral meetings with the EU Commission I led a significant round of high-level political dialogue with Ministers of EU Member States.

To ensure that Bermuda’s business model and hard-earned reputation remain intact, we have remained consistent in defending Bermuda’s interests in this international arena. Bilateral meetings have included:

• Cabinet Members of Commissioner Pierre Moscovici,

• EU Permanent Representatives of Latvia, Estonia and the UK.

• Mr Wolfgang Schmidt, State Secretary of German Federal Ministry of Finance;

• as well as the French Director of Tax Legislation at the Ministry of Economy and Finance in Paris.

These meetings were important as they provided Bermuda the opportunity to establish the groundwork for our negotiations with the European Commission, the Code of Conduct Group and the Member States. Mr. Speaker, what emerged from these meetings, particularly with the French and German representatives, is that European politicians are attempting to address the perceptions of their constituents and vocal interest groups who actively support tax transparency. However, EU Ministers have indicated that Bermuda has taken the right approach to engage and build substantial relationships with EU Member States directly, and many recognise our leadership in tax transparency.

Mr Speaker, I will be in Europe next week to continue our efforts in Brussels, and this will incorporate fixing the site of Bermuda’s EU Representative Office in Brussels. I look forward to meeting with the Belgian Minister of Finance in charge of Combatting Tax Fraud, Mr Johan Van Overteld; as well as EU Permanent Representatives of Lithuania, Slovenia and Romania. Honourable Members should be aware that the Romanian engagement is key as Romania prepares to take Presidency of the European Council in 2019.

Mr. Speaker, since I have been Premier I have met with OECD Secretary General Angel Gurria on two separate occasions. Discussions in Brussels will include the effect of the recent announcement by the OECD that its Forum on Harmful Tax Practices “the FHTP” will eventually replace the EU’s 2.2 substance regime. On coming into force, the substance rules will no longer be an EU standard but will be a global standard.

Mr. Speaker, the FHTP will usher in a globally applicable regime with obligations to report and spontaneously exchange information to all treaty partner countries. It is important to note, that the move by the OECD means that global standards in this area are developing.

Mr. Speaker, Honourable Members will no doubt have taken note of the recent Brexit agreement between the United Kingdom and European Union. The section on taxation and in particular the text on page 354, paragraph 3 which confirms the UK commitment to the Code of Conduct for business taxation as it stands at the end of the 21-month transition period.

Mr. Speaker, that section of the Brexit agreement simply means that the UK will continue to support the work of the EU Code of Conduct’s 2.2 regime and the OECD’s FHTP substance regime after Brexit even though the UK may not continue to sit at the EU table.

Mr. Speaker, we recognize that this legislation will change existing global business models, but in every test or trial there is opportunity. In the coming months it will be critical for Bermuda and her partners in industry to commit to supporting the remaining work on this initiative to ensure that Bermuda is able to emerge even stronger.

Mr. Speaker, leadership has been demanded of us and we are providing the leadership required. Our commitment to Bermuda and to the people we represent is to deal effectively with the challenge presented by these changes in global business practice. We will work with local and international partners to not only meet this challenge, but to ensure that the opportunities that will arise from these changes are used to drive economic growth and job creation here in Bermuda.

Thank you Mr. Speaker.

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