Many thanks to all readers who provided commentary on part one of the three-part feature on the Bermuda Government’s plans to consider imposing a corporate tax for the first time. You very kindly almost did my job for me, by raising numerous issues that hopefully you will also pass on to the Government.

At first read, the thought was that the Bermuda Government corporate income tax proposal appeared to represent another form of treaty shopping where competitors still might be able to undercut the agreed percentage (9 to 15 per cent).

Treaty shopping is defined as routing of income arising in the source country, to an entity in another country (country of residence), through an intermediary country, to obtain an unintended tax advantage, through interpretation of tax treaties between the three countries.

Extensive hours of research indicated that this new initiative is entirely different.

The concept proposed by the Organisation for Economic Cooperation and Development delineates a more harmonious solution. Every country (Bermuda included) participating in the OECD Outcome Statement has agreed conditionally to sign the same Multilateral Convention. Final signatures are not due until year end 2024 with full implementation one year later, 2025.

One concern is that the OECD is “making” Bermuda adopt these measures. Note, the Bermuda Government as a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting, participated willingly, as did numerous competitor jurisdictions.

A commentator stated that our tax model has worked for many years so why change?

The Bermuda Government paper, on page five, notes that there are several mitigating factors in the retention of the status quo, one being that under the Global Anti-Base Erosion Model (GloBE) rules there is potential for double taxation and erosion of Bermuda’s competitive position.

Notwithstanding that concern, our current tax model, except for payroll taxes, is not scaled progressively. It disproportionally impacts individuals and families just struggling just to get by.

They may not feel that customs duties on just about everything, assessed before point of sale, government taxes on fuel affecting transportation and utilities, and the like benefit them at all.

Further, my question to readers is how much longer are we, as a country, willing to put up with the constant tax label damaging our global financial jurisdiction reputation?

Last week saw a particularly vicious social media video attack by a YouTuber, nor does it matter that the purported facts are wrong.

Every time anyone types in “Bermuda,” there it is with others – messages perpetually damaging into infinity.

How is the tax proposed to work?

Page 8 of the Bermuda Government consultation paper states the Tax Calculation and Rate as the Bermuda corporate income tax would be equal to Bermuda taxable income (loss), as defined above, multiplied by the corporate income tax rate, with the product reduced by applicable foreign tax credits and qualified refundable tax credits (QRTCs).

It’s very complex, readers and is enough to make your head hurt.

Thus, this section – on guidelines establishing residency, permanent establishment, whether a MNE is a subsidiary of another company, how the top-up tax position will work, how the Government plans to blend this new tax regime with domestic taxation, will be reviewed after the next consultation paper is released.

Revenue derived: is it an enhancement or replacement of Bermuda’s existing tax structure?

The Government has estimated that there are an estimated 2,000 companies in Bermuda that meet the revenue threshold of 750 million euros (approximately $812 million, according to the exchange rate at the time of writing).

With the proposed rate of the new tax between 9 and 15 per cent, an estimate of 10 per cent is an easy computation number that might be a net fit, given that Bermuda tax would be reduced by foreign taxes (paid elsewhere) to mitigate any double taxation on the profit booked by the 2,000 companies within its scope.

It certainly would appear that such a cash infusion from the new tax could decrease or eliminate customs duty, possibly decrease payroll taxes, and even make significant progress in debt reduction.

The combined total in revenue, or gross income, generated by these companies is at least 2,000 x $812 million, which comes to a minimum of $1.624 trillion, a huge number.

However the tax will apply only to profit, which is revenue minus expenses – a considerably smaller number that will vary considerably year by year. And if there is no profit, there is no tax! And in the real world, very, very few companies report profits every single year.

When looking at Bermuda’s flagship reinsurance industry, for example, consider the commentary by analysts from Moody’s in a report published in January this year: “The rise in natural catastrophes over the last five years has increased losses for global insurers and reinsurers in tandem with the rise in economic losses. Reinsurers absorb risk from primary insurers and have seen large catastrophe losses that have taken a toll on profitability.”

Corporate profits/losses will be a challenge to managing fluctuating government revenues, which then means, such uncertain income streams represent a concentration of risk that cannot be relied upon to completely balance a budget, or replace all of the existing or a new domestic tax regime structure.

Further, the conversion cost to restructure an entire existing tax system while incorporating new tax reporting will be seriously expensive.

Accountability, credibility and transparency

Large companies designated as subject to taxation in Bermuda will be expected to provide full, transparent, accountable annual financial statements that generally will be audited, given their operational size.

Accountability and transparency have not exactly been government’s purview.

Consolidated statements are still not fully consolidated to include all direct and indirect liabilities of government-supported quangos, commissions, councils, authorities, pension funds, and companies.

The Auditor-General of Bermuda has warned several times over the last two years, as recently as a few months ago, regarding the combined 128 financial years that publicly funded bodies are behind on financial statement audits.

The Ministry of Finance must provide accountability for Bermuda’s finances in accordance with best international practices, Bermuda’s constitution, and in a sustainable manner, reflective of the standards that will be required by all entities subject to the Bermuda Corporate Income Tax.

More questions than answers, readers.

We simply don’t have any additional information.

A request to the Government for clarification on some points was not answered.

We now await more from government.

Readers, how should this fluctuating windfall be spent? In part three, we review the questions for which the Bermuda Government is requesting a high-level community response.

• Martha Harris Myron is a native Bermudian and a retired international tax and financial planner professional with a Master-in-Laws in International Taxation and Financial Services SCL. Contact: martha.myron@gmail.com