Government will block any attempt by local firms to pass on a new corporate services fee to international business -- even if it has to legislate professionals into compliance, Finance Minister the Hon. David Saul warned yesterday.

"The Ministry of Finance will be watching very carefully and discussing it with international companies,'' Dr. Saul said. "If we see an appreciable attempt to pass that particular $400 on, we will amend the legislation to prohibit it.'' The Minister announced in his Budget Statement on Wednesday that those persons who provide corporate services to exempted undertakings which do not have a physical presence in Bermuda must pay an annual fee of $400 to Government in respect of each such undertaking.

The announcement led to a flurry of discussions yesterday amongst service providers over the implications of the new levy.

But Bermuda International Business Association chairman, Mr. Cummings Zuill, said Government would eventually be powerless to stop the increased costs from being passed on in some way or another.

He was certain that the measure will eventually raise the cost of doing business for international companies.

Dr. Saul said yesterday that Government was moving to help spread the wealth obtained by select groups from international business to the rest of the community.

The reasoning was carefully laid out in the Budget, when the Minister noted that the provision of services to both international and local company business was a significantly growing element of the economy. And there is a substantial fee income now being earned by those servicing international business in particular.

He said: "It is evident from industry data that fee income has been rising faster than returns in any other form of economic activity. As a consequence a substantial benefit from the international business presence on the Island is being enjoyed by a comparatively limited number of entities.'' Corporate services will include the provision of a registered office and secretarial and directors' services for a fee. The measure is estimated to raise $2.9 million.

Already the president of the Bermuda Bar Association, Mr. John Cooper, has said that the new fee will be passed on to international companies, making it more expensive for them to do business.

The same day the announcement was made, he complained that service providers like law firms do not have a "slush fund'' ready to absorb the fee.

That position was backed up by Mr. Zuill, who last night said: "I have sympathy with the Minister, because he's got to come up with the money. But it is disconcerting for us because it is going to make Bermuda that much more expensive.

"It will be passed on to the international client. It is a fact of life. When the market can no longer pay the price, they will go elsewhere.'' Mr. Zuill is senior vice president and general manager for private banking at the Bank of Bermuda.

He said: "Dr. Saul has done a good job with the budget and tried to spread it around, but this and the occupancy tax for hotels are only going to make Bermuda more expensive at a time when we are trying to be more competitive.

"But do we have another answer? Probably not. There will be some impact, though. It is a fact of life.'' Dr. Saul said the Ministry would monitor the situation.

"There is an obligation on those local companies to keep Bermuda costs down and not pass these (charges) directly onto international companies,'' he said.

"They've got to be seen themselves, as taking a fair amount of this on their own books, in order to maintain Bermuda's competitiveness.'' If lawyers were concerned about the new levy, they were being tightlipped yesterday.

A senior partner at Conyers, Dill & Pearman, Mr. Michael Woods, declined comment, when contacted by The Royal Gazette .

At across town rival, Appleby, Spurling & Kempe, a senior partner Mr. David Doyle, would only say last night: "We are studying the financial implications of the proposals contained in Dr. Saul's budget. And we are awaiting further details from Government. Beyond that, we have no further comment at this time.'' It is understood that annual "day after'' consultations between the Finance Ministry and a number of groups and individuals concerned about the impact of the Budget took place yesterday.

The corporate services fee principly affects law firms, but accounting firms, banks and certain other smaller companies are also expected to end up paying the fee. There are a number of small firms whch act as the registered office of an exempted company and supply secretarial and a number of other services.

There are more than 8,000 international companies here, and more than 7,000 are to be affected.

Last night, Dr. Saul remained intent on proceeding with legislation that would impose the tax.

He said: "The evidence that we had, through Dr. Archer's report etcetera, is that we have seen over the last five years a 51 percent increase in the amount of fees paid by international business to these firms.

Saul defends `service fee' Dr. Saul said: "It's gone up from about $50 million to almost $80 million in five years.

"We just felt that it is only fair and reasonable that these firms who are providing corporate services to international companies outside of Bermuda, should share with the whole of Bermuda some of the benefits that they gain.

"Now because we don't have income tax or collect certain types of data, we have no idea whether this will adversely affect them, have minimal effect or be traumatic.

"We just know that with the data that we have and the information that is available to us, we thought that this would be a reasonable fee to put on them.''