The tax information exchange agreement (TIEA) between Canada and Bermuda is a “game changer” for corporations considering setting up a captive insurer on the Island, according to a Canada-based tax specialist.David Downie, partner, Canadian and international tax, at KPMG, told delegates at the Bermuda Captive Conference that the TIEA had levelled the playing field for Bermuda in its competition with Barbados as a domicile for Canadian captives.Mr Downie explained that the TIEA, which came into effect last year, had changed Bermuda’s status in the eyes of the Canadian Government to a “designated treaty country” (DTC), giving the Island many of the benefits of full tax treaty partners like Barbados.“Before 2011, the surplus was taxable, now its is exempt surplus,” Mr Downie said. “That means it can be returned to Canada tax-free, insead of paying 25 percent withholding tax.“That’s a huge, huge advantage Bermuda has. Barbados is no longer the number one place to go.”The Canada-Barbados tax treaty of 1980 has given the Caribbean island a long-standing advantage in the market, allowing it to attract some 200 Canadian captives over the years.Since Bermuda gained DTC status, the Island has launched a marketing campaign including a series of breakfast seminars in major Canadian cities.Some corporations, such as Vancouver-based mining company Teck and energy giant Encana Corp have already redomiciled their captive insurers from Barbados to Bermuda. And there are many more opportunities for new captive business, particularly within Canada’s booming resources sector.Paul Leighton, an analyst, Captive Advisory Services, with CPG Strategy, said Bermuda had numerous advantages from the Canadian viewpoint. The Island is a two-and-half hour flight from Toronto, it has a track record of stability and effective legislation, and an insurance industry staffed with mature and knowledgable people.Also he argued that Bermuda was cheaper than Barbados. “What really drives up expenses are the hidden or frictional costs that happen when things don’t go smoothly,” Mr Leighton said.“In Bermuda, you have an industry that’s set up to respond much faster — that’s what I mean when I say it’s cheaper to do business in Bermuda than Barbados.”Some Canadian companies were reluctant to form captives, Mr Leighton added, because the soft insurance market meant they could get good deals in the commercial insurance market.“That’s why now is the time to set up the captive, so you’ll be ready for the hard market,” Mr Leighton said. “Anyone who thinks the hard market is never coming is wrong. There are signs of it coming already.”Another panellist, Kara Ann Selby, partner, International Tax Services, with PricewaterhouseCoopers, said captives seeking to take advantage of the DTC tax benefits needed to meet a “mind and management” standard. This requires the decisions to be made in the captive domicile, as opposed to being dictated down the phone from the parent company’s C-suite in Canada.“To meet the ‘mind and management’ requirement, a majority of directors should be Bermuda residents,” Ms Selby said.“Board meetings should be held here with directors qualified to make decisions; books and records should be kept in Bermuda; when there is a significant decision to be made, it should be made a board meeting here.”