The Government appears to have accepted the reality of a global minimum tax, and the Budget suggested for the first time that Bermuda could reap significant revenue benefits from it.

The fear had been that the initiative, advanced by the Organisation for Economic Co-operation and Development, would threaten Bermuda’s international business industry, including the international insurance industry, the main driver of the economy.

A major step was taken early this month when the OECD released final guidance for governments on how to bring the new global minimum corporate tax on to their books, bringing the reform a step closer to roll out as early as next year.

David Burt, the Premier and finance minister, seemed to suggest in his Budget Statement that the change could be positive for Bermuda, although he conceded that some international companies may pack up and leave.

Mr Burt has told legislators: “The global minimum tax will represent a fundamental change in the way that Bermuda does business and the way that Bermuda’s Government raises revenue.”

He said while the initiative is not without its risks, “any tax windfall that may accrue to the government” from its implementation “must result in a reduction in those taxes that increase the cost of doing business and the cost of living in Bermuda.”

The Ministry of Finance expects to hear recommendations by July from an International Tax Working Group it has formed, consisting of “specialists in international tax matters and representatives of various bodies whose members may be directly impacted by this work”.

Describing the initiative as one of the most important and challenging matters that the Government has to tackle this year, Mr Burt deemed it too early to estimate what impact the global minimum tax could have on Bermuda’s future tax collections.

Many complexities, he said, will have to be addressed in the development of the appropriate framework for Bermuda. But he said any change should be used to benefit residents, instead of simply increasing tax collection.

New revenue would provide an opportunity for reductions to the employer payroll tax and customs duty, that increase the cost of living and doing business here.

He said: “With a successful implementation of a global minimum tax, residents and businesses can likely expect further reductions to employer payroll taxes and customs duties. In turn, this will decrease the overall cost of doing business and the cost of living in Bermuda to ensure the island remains competitive.”

One concern is that international insurers do not always profit from their operations, especially in heavy catastrophe years. That means a tax payment is not always assured, unlike customs duties and payroll taxes, which represent a steady stream of income.

Once the International Tax Working Group reports back, the Tax Reform Commission will be empanelled to look at the changes necessary to the existing system of domestic taxation to ensure that it is in line with the requirements of the global minimum tax while also examining what other changes to local taxes are needed to ensure that Bermuda’s economy remains competitive.

Mr Burt said the new tax could drive away some international companies. A more than half century old provision — the Exempted Undertakings Tax Protection Act 1966 — has provided some 8,000 exempted companies in Bermuda with a certificate exempting them from income tax until 2035.

But Mr Burt said that if companies were exempted from paying the tax in Bermuda, the companies would most likely have to pay tax somewhere, which could be costly for the island.

The fear that some companies might leave makes it essential, he said, that Bermuda advance the reforms proposed to grow Bermuda’s working population, and he floated the idea of Bermuda being a “mid-shore jurisdiction” sitting between offshore and onshore domiciles.

He said: “When I refer to becoming a mid-shore jurisdiction, it means that Bermuda must be a place where talented people from around the world desire to live and work.

“Simply put, we must make Bermuda a place that is more attractive for global talent looking to relocate so that they can assist in powering our island’s economic growth into the future.”

The global minimum corporate tax rate is a minimum rate of tax on corporate income internationally agreed upon through the OECD. Each country would be eligible to a share of revenue generated by the tax.

The aim is to reduce tax competition between countries and discourage multinational corporations from profit shifting to low-tax domiciles to achieve tax avoidance.