A slight typographical error, and pushing up close to the edge of a deadline, are factors that led to Bermuda being put on a European Union list of noncooperative tax jurisdictions.
The Bermuda Government expects the island to be taken off the blacklist in May, but first it must weather two months when many of its competitors enjoy the advantages of being recognised by the EU as co-operative.
As heavy rain lashed the windows of the Cabinet Office yesterday, the mood inside was equally overcast as ministers and representatives of the business community gathered for a press conference to discuss the unwelcome turn of events.
David Burt described the news as a setback and disappointing, and said the developments “are not where we want to be, and certainly not where we intended to be”.
The Premier and Curtis Dickinson, the finance minister, took turns to explain what had happened, and why they are confident things will be righted when the EU’s Economic and Financial Affairs Council [Ecofin] next meets in May.
Bermuda and 12 others committed last year to addressing EU concerns about the economic substance of companies and entities doing business from their respective jurisdictions.
Bermuda’s Economic Substance Regulations 2018 came into operation on the last day of the year, thereby fulfilling the island’s commitment. However, the EU still had to agree it was satisfied with the regulations, and this is where Bermuda’s problem occurred.
• On January 30, the EU’s Code of Conduct group raised concern about Bermuda’s regulations, along with those of some other jurisdictions. A time extension was given to make adjustments.
• On February 22, Bermuda amended its regulations, which were then sent to the Code of Conduct group ahead of the February 24 cut-off date.
• On February 27, a Code of Conduct group meeting flagged up one remaining concern regarding Bermuda’s regulations.
• On March 4, Bermuda made further amendments to its economic substance regulations. This was then sent to the EU.
• On March 8, EU envoys revised a draft list of non-co-operative tax jurisdictions. However, Mr Dickinson said some press reports claim the envoys did not fully consider Bermuda’s March 4 revision.
• Yesterday, Ecofin added Bermuda and nine other jurisdictions to the EU’s list of non-co-operative tax jurisdictions. There are now 15 jurisdictions on the list. Bermuda is in a group that is said not to have delivered their commitments on time. However, as Mr Burt tells it, Bermuda did not miss the deadline. He said: “I don’t accept the premise that we missed the deadline. This has been an evolving target, our submission was made prior to the deadline. There was a minor technical omission that was flagged to us; we made sure that was resolved in good time.”
When asked by the The Royal Gazette why Bermuda had ended up making amendments so near to the deadline, Mr Dickinson said: “We were in constant contact with technical officials within the EU and were working through the issues. There was a slight typographical error, an omission, that was not picked up by our respective teams, and our submission was incomplete in that one provision was not included.
“Once we realised we had an issue, we rectified it immediately and got our submission in — in time for it to be properly considered by Ecofin.”
Bermuda’s reputation could take a dent from it being put on the blacklist, and the inference that it missed a key deadline.
Mr Burt said: “The question of reputational damage is noted. Bermuda has a long reputation, [and while] not trying to minimise this, this is the EU. There are many other international organisations that judge tax transparency compliance, and Bermuda has absolutely no issues with them.”
That said, the Premier also recognised the importance of the EU to Bermuda.
“We will get past this and we are confident that we will continue to work with the EU; as one of our major trading partners it is vital to our domestic industries in financial services.”
He also said the UK had stated that Bermuda has legislated “to address the issue identified. In light of this we expect Bermuda and other compliant jurisdictions to be removed from the list at the next available opportunity”.
Mr Dickinson expressed confidence that the island was now compliant with the EU. He said: “Bermuda officials will meet key European Union officials in Brussels, Paris and Berlin to reinforce Bermuda’s position.
“The last few months have been a trying time. I want to thank all the stakeholders who have assisted the Ministry of Finance during this process; we must be united to ensure that Bermuda is removed from the list.”
The minister was asked if he had thought of banning Google from Bermuda as the island works to get removed from the EU blacklist.
Google is often highlighted for the way it moves billions of dollars of revenue between countries. It used a legal tax strategy to move $22.7 billion to Bermuda in 2017, however, its only physical presence on the island was a post office box at the General Post Office in Hamilton.
Responding to the question, Mr Dickinson said: “We would like to encourage Google, that are part of the issue, to help us through this by establishing a more substantive presence in Bermuda. We think that works for both ourselves and for Google.”
Both he and Mr Burt said they were not aware of any sanctions that would be imposed on jurisdictions that are on the non co-operative tax jurisdictions list.
Mr Burt also said: “Between now and May a fairer assessment of Bermuda’s legislation will confirm our compliance, and we will be removed from this list.”
In contrast to Bermuda, Cayman Islands and British Virgin Islands avoided being put on the non-co-operative list, and have been given extra time to adapt their economic substance legislation.
When asked if he was concerned that Bermuda may lose business as a result of its blacklisting, Mr Dickinson said: “We are compliant today. In light of that fact, we think that businesses should stay here.”
If there are lessons to be learnt, they will be. The finance minister said: “There will be an opportunity for me and my team to look back at all the things we did over the course of the last several months, with respect to this process, and identify ways to improve the process to make sure we do not have a repeat of this.”