In the third and final part of the Moneywise review of the Bermuda Corporation Income Tax Consultation Paper issued by the Bermuda Government, we look at the implications of the potential new tax for Bermuda.

In 2021, 135 Inclusive Framework members of the Organisation for Economic Cooperation and Development (OECD), representing more than 95 per cent of global GDP, joined a two-pillar solution to reform the international taxation rules and ensure that multinational enterprises pay a fair share of tax wherever they operate and generate profits.

Two years later, Bermuda, along with 57-plus countries (among the now 142 who agreed to implement the plan) are in the process of consulting, implementing, or may have already ratified these new rules.

You can track the progress of these countries, along with new additions as they proceed along the path of taxation fairness. You will also know who has embraced the concept, and who has not. Recall that this initiative is not country compulsory.

The OECDPillars website (oecdpillars.com) through its Domestic GloBE Implementation Tracker, provides a continually updated list of progress by country. Some of our neighbours and competitors are among them: the Bahamas, Barbados, British Virgin Islands, Cayman Islands, Gibraltar, Ireland, Isle of Man, Malta, Jersey, and the United Kingdom while South Korea is enacted into law.

This bold initiative has profound implications for our country.

William Soares, in a must-read, well-researched and succinct Letter to the Editor, published in The Royal Gazette last Saturday, outlined the big taxation decisions Bermuda faces.

Mr Soares presented four accompanying insightful graphs, one of which shows our reliance on international business for the US dollars that critical for our fiscal situation.

Given our dependence on international business, Mr Soares posited, we face either a once-in-a-generation opportunity or potential catastrophe with the enactment of a global minimum tax. While the OECD measure is primarily aimed at global technology firms, it has the potential to significantly impact our international business sector.

“We are entering uncharted territory,” he wrote. I agree.

Mr Soares lists two potential paths – pessimistic or optimistic – that Bermuda may take, then elaborates on the optimistic choice in three strategic steps.

Summarising his main points:

1, Revisit non-tax policies that offset the potential loss of tax incentives. Policymakers must ensure that more is done to encourage international business to stay, whether it be through immigration policy, work-permit policy, opportunities for property ownership, citizenship, etc.

2, Enact transitional measures and revisit other taxes: a transition of this magnitude needs to consider existing taxes and include a mechanism to defer change (in the current tax system), should the global tax not go ahead. If a new tax is to be introduced, we will need to lower the cost of business elsewhere, simultaneously by simplifying or eliminating payroll tax, expanding the list of customs duty-free items, rolling back or eliminating other corporate fees, etc.

3, Enhanced budgeting: recognising the inherent volatility of corporate income tax (see attached table), we must adopt a prudent approach to budgeting. Establishing a segregated account for any unexpected windfall revenues will assist with cash planning in lean years, replenishing the sinking fund and bringing debt reduction within reach.

His comments are highly reflective of those expressed by commentators on my articles along with their real anxiety about the government’s future management of this new source of revenue.

Consultation paper response

Every single individual interested in the future of Bermuda’s community, now working, and/or retired needs to, at the very least, go through the Proposed Bermuda Government Corporate Income Tax consultation and reply, as you are comfortable, to the ten response questions. Do not be intimidated by the language; take the time to state your opinions or concerns and e-mail them to cjanderson@gov.bm.

Many of the questions (such as 2, 4, 5, 6 and 8), we can certainly leave to internationally experienced qualified accountants and attorneys. One of the proposed computations of the tax itself encompasses 70 pages of “accountingese“ – total frustration for ordinary working people.

Consultation questions follow with answers from yours truly:

1, Are there any aspects of the proposed scope of the Bermuda corporate income tax and the determination of which entities are within the scope that present concerns or require further clarification?

What will prevent entities from reorganising corporate structure to report revenue below the scope of 750 million euros, or moving to another more favourably tax-inclined jurisdiction?

What about local, very large corporate entities not classified as multinational enterprises that originally settled and operated under the tax exemption initiatives? How will the Government mollify or provide incentives to mitigate the loss of the tax exemption?

2, Are there any proposed aspects of the definition of tax residency which require further clarification or present concerns?

Answer for highly experienced international tax practitioners.

3, Do you have any comments on the proposed effective date of January 2025?

Highly doubtful that all can be accomplished given the significance of just reviewing one MNE consolidated financial statement on a global basis involves significant work hours.

4, Do you have any general comments or suggestions regarding the computation of Bermuda taxable income? Are there any specific comments regarding the accounting standards to be used as the starting point for the calculation of Bermuda taxable income or other adjustments in the calculation of Bermuda taxable income?

Answer for highly experienced international tax practitioners.

5, Do respondents have recommendations as to the appropriate rate of corporate income tax?

Answer for highly experienced international tax practitioners.

6. Do you have any comments or suggestions regarding possible QRTCs to be incorporated into the Bermuda corporate income tax regime?

Answer for highly experienced international tax practitioners.

7, Do you have any views regarding the administrative aspects of reporting and payment obligations under the Bermuda corporate income tax regime?

Bermuda has never been exposed to global tax accounting systems. We will need the most experienced international tax professionals available and an internationally experienced judge to remand at a new Tax Court.

8, Are there simplification options which should be considered for the Bermuda corporate income tax regime?

Answer for highly experienced international tax practitioners.

9, Are there aspects of the current tax regime in Bermuda that should be changed to ensure Bermuda’s competitiveness?

Mr Soares’ letter provides some good answers to this question.

10, Are there any other considerations of significance that should be considered in the development and implementation of a Bermuda corporate income tax?

New legislation is required to create a special allocation fund designated specifically to reduce Bermuda’s foreign principal debt. Monies should not be deposited into the general fund. Period.

Conclusion

Bermuda will need to participate, because if we do not enact the new tax regime here, another jurisdiction will collect the tax and reap the benefits.

More on this!

• Martha Harris Myron is a native Bermudian, and a retired international financial planner Bermuda-Bermy Island Finance Blog at http://www.marthamyron.com/. Contact: martha.myron@gmail.com