Bermuda: Bermuda's Sophisticated International Transparency And Regulatory Environment

Last Updated: 28 July 2017
Article by Stephanie Sanderson

Increasing complexity in cross-border structures, the effects of the recent global financial crisis, increasing fears over diminished tax revenues and multiple financial scandals have impacted various countries around the world. These concerns, and increased globalisation, have driven the push for greater transparency and internationally agreed standards of due diligence and reporting. International financial centres must now uphold the principles of transparency and exchange information with global partners in order to stay in the game.

Bermuda's reputation as a 'blue chip' international business jurisdiction and its long-standing position of transparency and cooperation has historically differentiated Bermuda from other jurisdictions. Discerning fund managers and investors are increasingly seeking a sophisticated jurisdiction which offers balanced regulation and is internationally respected as a place in which to invest and conduct business. Bermuda provides this 'gold standard'. The jurisdiction is therefore benefitting from a flight-to-quality phenomenon as fund managers, investors and organisations are increasingly reacting to global regulatory pressures and finding that Bermuda is a safe and respected offshore jurisdiction.

INTERNATIONAL LEADER

Bermuda is an overseas territory of the United Kingdom with English as its official language and is ideally located between Europe and the United States. It is regarded as a reputable international finance centre with sophisticated international business carried on in the jurisdiction and a strong infrastructure including a 400-yearold court system, an internationally recognised stock exchange (Bermuda Stock Exchange) and depth of market experience. Bermuda is home to an unrivalled collection of talent and intellectual capital in key sectors and services including fund administrators, auditors, financial advisers, lawyers, IT specialists, corporate secretaries and a full range of support services.

Bermuda's principal regulator, the Bermuda Monetary Authority, is globally recognised as meeting international standards and is a member of the International Organisation of Securities Commissions. In 2016, Bermuda was granted coveted full EU Solvency II equivalency which means that Bermuda's commercial (re) insurers are not disadvantaged when seeking and writing business in the EU, an achievement that serves as concrete validation of the jurisdiction's regulatory sophistication. Bermuda has further achieved recognition by the US National Association of Insurance Commissioners as a Qualified Jurisdiction – one of only seven foreign jurisdictions with this designation.

Bermuda was selected as one of the hand-picked countries which the European Securities and Markets Authority (Esma) identified to assess in respect of the EU Alternative Investment Fund Managers Directive (AIFMD). It has been actively working to demonstrate that it should be granted the AIFMD 'passport' — a recognition that, if Bermuda achieves, would provide important benefits to Bermuda's investment funds sector and yet another reason for fund managers to establish offshore funds in Bermuda.

COLLABORATION

Bermuda maintains its reputation as an industry leader through its well-balanced and collaborative approach when it comes to its regulatory environment and transparency regimes. The jurisdiction continuously modernises its legislation and infrastructure to offer competitive options to fund managers, stakeholders and potential investors in Bermuda.

The Bermuda Government and Bermuda Monetary Authority work closely with the private sector to develop laws and regulations that enhance the business environment in Bermuda by implementing sensible, risk appropriate and forward-thinking policies and globally recognised regulatory regimes.

TRANSPARENCY AND INTERNATIONAL COOPERATION

Bermuda is recognised by the international community for its commitment and cooperation as regards transparency and information exchange while maintaining a sensible, business-friendly approach. Bermuda is fully committed to global initiatives to prevent tax evasion and money laundering and has continued to score well on internationally recognised indices.

Bermuda's consumption-based tax system has been in place for over 100 years and has served it well in financing its government and infrastructure. Bermuda's tax laws and various treaty commitments avoid double taxation of corporations and it is committed to assisting other jurisdictions claim revenue their taxpayers are obligated to pay.

Bermuda can be credited with maintaining a beneficial ownership registry for about 70 years, long before the international community agreed that this should become a standard requirement in major business centres, and it continues to hone the regime. 'Anonymous shell companies' are simply not permitted in Bermuda.

Bermuda has bilateral Tax Information Exchange Agreements with 43 jurisdictions and was the first jurisdiction to be elevated to the Organisation for Economic Cooperation and Development (OECD) 'white list' in 2009 in recognition of the implementation of internationally agreed tax standards. Bermuda has never had bank or financial secrecy laws and the jurisdiction implemented the Basel III global regulatory framework for more resilient banks and banking systems in 2015, imposing capital adequacy requirements and liquidity coverage ratios.

AUTOMATIC EXCHANGE OF INFORMATION

International automatic exchange of information regimes began with the establishment of the United States' Foreign Account Tax Compliance Act (Fatca) and the United Kingdom's 'UK Fatca' or 'CDOT' (CDOT) some years ago. The principle was solidified more recently through the large-scale adoption of the Common Reporting Standard (CRS) and has been further developed by the introduction of Country-by- Country Reporting through the OECD's Base Erosion and Profit Shifting (Beps) Project.

Bermuda entered into inter-governmental agreements in 2013 with the US and the UK to exchange tax-related information under Fatca and CDOT on account holders located in Bermuda. However, the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (Convention) is one of the keys to the legal and operational structure for the automatic exchange of information under the CRS and Country-by-Country Reporting and includes rules on confidentiality and proper use of information. It is a freestanding agreement developed jointly by the OECD and the Council of Europe and is the most comprehensive multilateral instrument available in the area of tax co-operation. The Convention was extended to Bermuda in 2014.

THE CRS

Bermuda was one of the first countries to sign up to the CRS as part of the 'Early Adopter Group', undertaking the first exchanges of information by September 2017.

The CRS framework was developed by the OECD in response to requests by the G20 and calls on jurisdictions to obtain information from financial institutions and automatically exchange information with partner jurisdictions on an annual basis. The CRS has become the global standard for the automatic exchange of tax-related financial information which includes information relating to bank accounts and certain financial assets.

The CRS draws extensively on the intergovernmental approach of Fatca, although the CRS does deviate in certain respects. The United States has not adopted CRS but has continued with the Fatca regime so that, in Bermuda, Fatca runs alongside the CRS whereas CDOT will eventually be replaced by the CRS.

COUNTRY-BY-COUNTRY REPORTING

Bermuda was the first British Overseas Territory to adopt the OECD's Country-by-Country Reporting regime. The 15-point Beps Action Plan was introduced by the OECD and G20 countries to enhance transparency for tax administrations by providing them with information to assess high-level transfer pricing and other Beps-related risks. Action 13 includes the Country-by- Country Reporting regime and provides for annual reporting in each tax jurisdiction in which a multinational group (meeting the criteria) does business.

The Country-by-Country Reporting regime only applies to multinational enterprises located in two or more jurisdictions that meet the €750m ($839.1m) threshold. It is expected that this threshold exempts approximately 85-90% of multinational enterprise groups who, as a result, do not fall within the ambit of the regime.

STAYING INFORMED

Now, more than ever, it is important to stay informed by monitoring developments on both international and domestic fronts. The OECD website is essential for keeping up with the latest developments in relation to its global initiatives and regimes, including the CRS and the Beps Project. Domestically, the Bermuda Ministry of Finance has issued various statements and guidance on transparency matters including Fatca, CDOT, CRS and Country-by-Country Reporting which are available through its web page.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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