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Blood, Sweat and TIEAs in Bermuda
London & Bermuda Newsletter
Following the signing of its latest Tax Information Exchange Agreement (TIEA) with the Netherlands, Bermuda has been elevated to the Organisation for Economic Cooperation and Development’s (OECD) “white list”. It is the first of the “grey listed” countries to have done so. The TIEA with the Netherlands is the 12th to be signed. The Island’s Ministry of Finance has also concluded negotiations with Germany, Mexico and Canada and will sign TIEAs with those countries by the end of the year. Negotiations with Japan are said to be in an advanced stage. The Ministry’s goal is to have TIEAs with all G7 countries (agreements with France, Italy and Japan are left to be ratified after the conclusion of the agreements with Germany and Canada) and its other important trading and commercial partners.
The Bermuda government and business leaders have been on the offensive since Bermuda was unceremoniously dumped on the OECD’s second tier list of off-shore jurisdictions during April’s G20 summit. They were quick to indicate that the island’s inclusion on the “grey-list” (indicating that it was a “tax haven”) was unwarranted and unfair given Bermuda’s longstanding commitment to transparency and the exchange of tax information. The Ministry was also keen to highlight that Bermuda had already concluded negotiations for the minimum required number of TIEAs by the time of the summit. The Minister publicly lamented the fact that other jurisdictions, which had less developed regulatory regimes and which had been slower than Bermuda to respond to calls for transparency and the exchange of information, found themselves either included on the OECD’s “white list” or (curiously, in the case of Hong Kong and Macau) omitted from the progress report.
Even before the TIEA with the Netherlands was signed, the Ministry’s protestations about Bermuda’s inclusion on the “grey-list” appeared to have found some sympathy within the OECD. Last month the OECD issued a statement lauding the island’s historic commitment to international standards. The director of the OECD’s Centre for Tax Policy and Administration commented that Bermuda was
an important financial centre that played a constructive role in developing the standards now endorsed by all major financial centres.
The TIEAs ratified by Bermuda are bilateral, not unilateral, instruments. As such, both the Island and its counterparties are entitled to negotiate terms that are in their respective interests. Under the TIEA negotiated with Canada, for example, Bermuda has obtained an agreement to allow the profits from Bermuda subsidiaries of Canadian companies to be repatriated to the parent without being taxed in Canada. This benefit is ordinarily reserved for countries that have a double-tax treaty with Canada and, according to the Ministry of Finance, was agreed to after months of negotiations.
In contrast to Bermuda, the Cayman Islands has adopted a unilateral mechanism for implementing most of its TIEAs. The mechanism is said to have the force of a bilateral agreement as a matter of the Cayman domestic law. In addition to eight bilateral agreements, Cayman has 12 more that have been put in place under the unilateral mechanism. The OECD is said to be considering Cayman’s unilateral mechanism but has to date not used its 12 unilateral agreements as a basis for elevating it from the “grey list”. Press reports from the Cayman Islands indicate that its tax treaty negotiating team will continue to negotiate bilateral agreements in an effort to agree and sign the minimum 12 required accords.
Now that Bermuda has reached the OECD’s “white list” there is likely to be a shift in focus away from the question of implementation of the agreed standard toward an examination of how the island in practice gives effect to its TIEAs.
Offering international assistance in matters of taxation is not something that is novel in Bermuda. The Island has been a party to a TIEA with the United States since 1988 – a time before TIEAs became fashionable – and has responded to requests for assistance from the IRS under that TIEA for some time. If the experience of the USA-Bermuda Tax Convention is anything to go by, the Ministry of Finance (with the aid of the Bermuda courts) will readily accede to proper requests for assistance in gathering information and examining individuals located on the Island. The Minister is likely to facilitate any such request provided it is made in the form prescribed by the TIEA (or in the form prescribed by any enabling legislation) and without regard to the merits of the foreign authority’s investigations or the relevance of the information requested to those investigations. Similarly, although Bermuda is not a signatory to the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters, it has enacted legislation similar to that enacted in the UK for facilitating requests for assistance from foreign courts and the Bermuda court frequently processes and upholds such requests.
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