Bermuda economic substance reforms result in EU white-listing

Thursday, 06 October 2022
The European Union has declared that Bermuda has reformed its tax system in line with EU demands, and has accordingly removed the jurisdiction from its 'grey list' of jurisdictions whose commitment to tax cooperation was under close scrutiny.
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An assessment by the OECD Forum on Harmful Tax Practices (FHTP) in November 2021 identified that Bermuda was not yet effectively monitoring resident companies' compliance with economic substance legislation, developed in response to OECD and EU requirements. The requirements are designed to ensure that jurisdictions do not use low rates of corporate income tax to attract profits without real economic activity. Bermuda had been one of four jurisdictions identified for focused monitoring on this issue. However, Bermuda's commitment in January 2022 to remedy these monitoring deficiencies convinced the FHTP's April 2022 meeting that it was cooperating sufficiently. This, in turn, satisfied the EU Code of Conduct Group (Business Taxation) that Bermuda should be removed from the EU's grey list, officially called Annex II.

Bermuda's government has welcomed the decision as 'positive' and said the jurisdiction 'remains committed to cooperating with the OECD FHTP and EU Code of Conduct Group (Business Taxation) in implementing tax governance standards.'

The EU has also white-listed Costa Rica and Tunisia. Costa Rica's Special Economic Zones regime is no longer regarded as harmful, subject to formal adoption of the necessary legislative changes. Tunisia completed its commitment to activate country-by-country (CbC) reporting exchange relationships with all EU Member States in July 2022 and started CbC exchanges with relevant partners as a non-reciprocal jurisdiction.

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