December 17, 2018

Members, there is one personal expl anation today .
Leave [was sought] because we were originally coming back not to do anything other than a partic ular Bill that is on the Order [Paper] today, and the
Premier , in a revisit of a Statement that was given,
realised that there was a matter that needed to be clarified on that Statement. He would just like to clarify
it before the House closes.
Premier, we will allow you to give the personal
explanation to provide t hat clarification.
Hon. E. David Burt: Thank you, very much, Mr.
Speaker, and good morning to you.

Good morning.

494 17 December 2018 Official Hansard Report

Bermuda House of Assembly SALE OF VICTORIA HOUSE
TO ARBITRADE —PREMIER’S QUESTION TIME
[14 December 2018]

Hon. E. David Burt: Mr. Speaker, on Friday, during
Premier’s Question Time, in response to a question
about Arbitrade, I indicated that enhanced due dil igence was conducted by way of access to the “international Interpol system .” I would like to clarify that
statement.
The information systems used b y Bermuda’s
Financial Intelligence Agency [FIA] to facilitate en-hanced due diligence requests contain information
from multiple sources, not solely Interpol. Though this
is a minor distinction, I felt that it was important to clar-ify this for the record.
Mr. Speaker, section 18 of the Financial Inte lligence Agency Act 2007 gives the Financial Intell igence Agency the power to disclose information of its
own volition or upon request to the Minister of Finance
if the disclosure is for the purpose of enabling or assisting the Minister to discharge their functions under
any statutory provision.
Mr. Speaker, as directed by me, the Ministry
of Finance requested additional background infor-mation on the company, its principals, and its benef icial owners. Based upon the information provided by
the Financial Intelligence Agency, in addition to the checks already conducted by the Registrar of Companies, the Ministry was able to proceed with the appl ication.
Mr. Speaker, there has been a lot of attention
given to Arbi trade inside of this House, in traditional
media, and in social media. Some of this commentary
has erroneously conflated the Government’s approval
of a licence for this company to purchase property
with due diligence done on any digital asset issued by
Arbitrade prior to incorporation in Bermuda, specifically the dignity token.
I wish to make it clear to this Honourable
House that the Government of Bermuda has not examined, scrutinised, or approved any digital asset i ssued by Arbitrade, and to date, no app lication has
been received under the Initial Coin Offering Act [Limited Liability Company (Initial Coin Offering) Amendment Act, 2018 (the “ICO Act”) ] for the issuance of a
digital asset.
Additionally, there has been no licence issued
by the Bermuda Mone tary Authority to Arbitrade to
conduct a digital asset business. The approval for a
company to purchase property is wholly unrelated to
the Bermuda’s digital asset regime and it would not be
correct to state that one will affect the other, or to i mply, as some have, that approval to purchase property
is a sign that other approvals are imminent.
Mr. Speaker, it is my hope that following this
explanation all persons, both inside this House and outside this House will allow the process for any l icence which may be issued to any company looking to conduct digital asset business in Bermuda to follow
its normal course. We should trust the systems in
place and the independent Bermuda Monetary A uthority to protect investors and the reputation of Bermuda.
Thank you, Mr. Speaker, for allowing me to
make this short, but important, personal explanation.

Members, and for the sake of our li stening audience, we are sitting today specifically to
deal with one matter. It is the only item on the agenda
for us today.
It is the second reading of the Economic Su bstance Act 2018 in the name of the Minister of F inance. But Members and particularly those in the public audience, again, the significance and the i mportance for us to have this special sitting will become clear as the Minister presents his presentation this morning.
So, I thank Members for their indulgence for
allowing us to sit today for this special sitting.
Minister.



Bermuda House of Assembly BILL WITHDRAWN

ECONOMIC SUBSTANCE ACT 2018
[Tabled 7th December 2018 ]

Hon. Curtis L. Dickinson: Good morning, Mr.
Speaker.
Mr. Speaker, under the provisions of Standing
Order 48, I move to withdraw the Bill entitled Economic Substance Act 2018 tabled 7th December 2018.

Continue, Minister.
[Motion carried: Standing Order 29(1) suspended.]

BILL
SECOND READING

ECONOMIC SUBSTANCE ACT 2018
Hon. Curtis L. Dickinson: Mr. Speaker, I rise today
to address Honourable Members on perhaps the most important Bill to Bermuda’s international business sector and to Bermuda’s economy that this House has
had t o consider in recent history.
Mr. Speaker, we are a small jurisdiction, too
small to export agricultural products, textiles, cars,
boats, or just about anything Honourable Members
can think of that would generate sufficient income to
run our economy, except for the qualities of our people. There have been explorations in offshore fisheries
and seabed mining with international fisheries quotas in the North Atlantic , and the March 11, 2014, Hami lton Declaration on Collaboration for the Conservation
of the Sargasso Sea, otherwise known as the Hami lton Declaration for collaboration in high seas conservation, signed by the then Government, are hurdles to
overcome.
Therefore, Bermuda’s potential to exploit our
only abundant natural resource, the high seas, to cr eate an export industry to the level sufficient to sustain
our economy is not a realistic aspiration in the short
run. Mr. Speaker, it is our people’s renowned hospitality to service our tourists and our people’s intellect and professionalism to service our international business
clients that enables Bermuda as a country to survive.
Mr. Speaker, some parts of the world are envious of Bermuda’s success and have now openly
attacked the core of our economy, our strongest ec onomic leg, our international business industry. Mr.
Speaker, I speak of the European Union [EU] who are
fuelled by , or to use the term “egged on” by , nongovernmental organisations that believe that if you do
not have an income tax regime then something must be wrong with you. That if your tax regime is consumption based instead of income based, then you
must be the cause of diverting other countr ies’ tax
revenue away from potential use to assist to feed
some developing countries and care for refugees, m igrants, war victims, et cetera.
Mr. S peaker, such NGOs [Non- Governmental
Organisations] have clearly won this round , for they
have convinced policymakers in the European Union
to attack all low - or no- income tax jurisdictions, inclu ding Bermuda. This is despite the global body for
cross- border tax policy to which the G20 has for years
delegated its global tax competition mandate, and I
am referring to the Tax Policy Division of the organis ation for Economic Co- operation and Development,
better known as the OECD, which has rated Bermuda “largel y compliant,” meaning cooperative.
Mr. Speaker, when one of my predecessors,
Minister of Finance, the late Honourable C. Eugene Cox, wrote Bermuda’s May 15, 2000, Level One,
Commitment Letter to the OECD, in respect of the
496 17 December 2018 Official Hansard Report

Bermuda House of Assembly OECD’s project on harmful tax competition, along with
several of our peer jurisdictions writing similar Commitment letters at that time, it ushered in an era of i ncreased partnership and understanding between the OECD and cooperative low/no income tax jurisdi ctions.
Mr. Speaker, Bermuda even serves on the
OECD Global Forum Working Group on Effective Exchange of Information that produced the OECD model
Tax Information Exchange Agreement , called a TIEA,
which was published by the OECD in April of 2002. Mr. Speaker, the OECD at that time, and continuing to
this day, concluded that low - or no- income tax jurisdi ctions that have two key elements, (1) transparency in
their laws and (2) exchange of information agre ements (TIEAs) are not harmful.
Mr. Speaker, the OECD rating of Bermuda is
“largely compliant,” is based on the OECD asses sment of Bermuda in mid- July of last year for our co mpliance with the two key elements, transparency and exchange of information. Mr. Speaker, therefore, Bermuda is one of those low - or no- income tax juri sdictions that the OECD concluded is not a harmful
low- or no- income tax jurisdiction.
Mr. Speaker, Bermuda’s status as a low - or
no-income tax jurisdiction that is not harmful is rei nforced by compliance with OECD standards of today whereby we have adopted ev ery form of exchange of
information the OECD has thrown at us, such as, au-tomatic exchange of the OECD’s version of the US
FATCA [Foreign Account Tax Compliance Act ], that
is, the OECD’s C ommon Reporting Standard, known
as CRS , and the OECD automatic exchange of Cou ntry-by-Country Reporting Information, known as C bC.
Mr. Speaker, additionally, Bermuda was
among the early adopter countries of these automatic exchange of information regimes. I might add that
some EU m ember states were not early adopters of
the automatic exchange of information regimes . Mr.
Speaker, as mentioned earlier, the European Union,
influenced by some of civil society, broke rank with the
long-standing OECD standard for low - or no- income
tax jurisdictions and independently conclude d that
irrespective of a low - or no- income tax jurisdiction
having transparency and exchange of information pr otocols, it places it in, nevertheless, a harmful tax juri sdiction— or, in European terminology, a noncooperative jurisdiction— unless it submits t o the EU’s
economic substance requirements, the subject of the
Bill being debated today.
Mr. Speaker, as is the case when one is co nfronted with a bigger and stronger opponent, a bully on the school playground, you run and tell the teac her, a responsible adult, and you seek assistance from
peers of the bigger and stronger opponent. Mr. Speaker, unfortunately, it has been the case that there is, to date, no intervention by the bigger and stronger
countries to cause the EU to quickly reverse its de-mands on low - or no- income tax jurisdictions. I point out that the EU body at the top of this drive to threaten
blacklisting is the EU Economic and Financial Affairs
Council, configured commonly known as ECOFIN , the
members of which are the Finance Ministers of the 2 8
member states.
Mr. Speaker, ECOFIN ’s resolutions on tax
matters must be unanimous; meaning, all 28 members states of the European Union voted yes to the
EU blacklist regime and its economic substance crit eria for low - or no- income tax jurisdictions. Mr. Speaker, while none of the bigger and stronger countries have been able to influence the EU, the OECD under
the direction of the OECD Secretary General, with
whom the Premier has met, has managed to intervene.
Mr. Speaker, the OECD head of tax recently,
in late November, informed several leaders of several
low- or no- income tax jurisdictions, including in a bilateral phone call with our Premier, that the OECD will
eventually replace the EU economic substance r egime with an OECD substance regime for low - or noincome tax jurisdictions. But this eventuality that has
been discussed between the EU and the OECD is still
a work in progress and, therefore, will not immediately
. . . and will likely occur long after the EU blacklisting
time limit of February or Mar ch of 2019. Mr. Speaker,
therefore all low - or no- income tax jurisdictions must
comply with the EU’s blacklist regime in order to avoid
being blacklisted by the EU.
Mr. Speaker, yes, one of the peers of the bi gger and stronger opponents, the G20 mandated global standard- making body for international tax cooper ation, the OECD, has come to the rescue with an ec onomic substance regime for low - or no- income tax
jurisdictions to be administered by the OECD’s Forum
on Harmful Tax Purposes, commonly known as the
FHTP. But as I stated earlier, the cavalry is not due to
arrive until long after the EU’s February/March 2019
blacklisting date.
Mr. Speaker, so plainly —plainly —what the
media and NGOs refer to as “offshore financial service centres” [OFC] are perceived by many in Europe
––at the “man- in-the-street” level, and at the political
level––as “an antisocial element.” Mr. Speaker, it is
our duty to continue to fight those misconceptions and
prove them to be incorrect. The difficulty of this fight is
that incidents like the Panama Papers indicate that
some offshore financial centres and/or some pract itioners therein, are not up to the standards of others.
Mr. Speaker, Bermuda can and has demonstrated that we are a leading blue- chip compliant of fshore financial cent re. However , the level playing field
concept with global regulatory bodies appl ied to their
initiatives means that Bermuda, at the top of the international cooperation, is often placed in the same
bucket as others that are not. Mr. Speaker, we see opportun ity arising from the EU substance regime
whereby it will force those jurisdictions at or near the
bottom, in terms of compliance with international


Bermuda House of Assembly standards, to raise their game up to the international
standard. We also appreciate some overseas companies may view Bermuda as a domicile of choice if
companies find themselves in the position of having no choice in establishing a physical presence or ec onomic substance in the jurisdiction where they are
registered and thus may seek Bermuda as a domicile
of registration.
Mr. Speaker, to the intellectually honest observer , the OECD base erosion and profit shifting initiative , otherwise known as BEPS, is proof in and of
itself that we, the low - or no- income tax jurisdictions
are not the source of the so- called pr oblem behind the
large countries’ loss of portions of their income tax
revenue. Mr. Speaker, the OECD BEPS initiative has
identified and targeted the abusive use of the world
network of large income tax countries ’ double taxation
agreements, better known as DTAs , as the leading
culprit of aggressive tax avoidance when DTAs are
abusively coordinated with a large income tax country’s manipulation of their domestic income tax laws.
Mr. Speaker, in recent years we have read
press reports about the EU’s investigation of what it termed “illegal state aid,” and in some cases forcing
some of their own EU member states to retroactively
apply back taxes on some of the giant multinational
enterprises, while at the same time the OECD BEPS has pressured the revising of all of the world’s DTAs
via an OECD multilateral protocol document, commonly known as the OECD’s multilateral instrument
[MLI].
Mr. Speaker, because the large countries
have felt pain through the OECD’s implementation of
BEPS anti -tax avoi dance initiative, there may be a
perception among them that low - or no- income tax
jurisdictions must somehow be made to feel or share
the same pain. Mr. Speaker, this perception has led
today to an EU economic substance regime founded
on questionable tax policy conclusions and applied against jurisdictions that do not have the means to
manipulate the global network of DTAs, nor the
means to fiddle with our domestic income tax law,
given we have no domestic income tax law to ab usively fiddle with to attract entities of no economic
substance.
Mr. Speaker, the entities of so- called “no ec onomic substance” establish themselves in low - or noincome tax jurisdictions after they have avoided large
countries ’ income taxes by being positioned in a multinational corp orate structure in a way to take advantage of tax avoidance effect on the DTAs and tax
avoidance elements in the domestic income tax laws of large countries.
Mr. Speaker, the domestic tax laws of the
large countries can be made to tax their own taxpa yers’ overseas income rather than the tax deferral, tax
credit, or tax offset provisions large countries provide
in their domestic income tax laws. Mr. Speaker, we
believe the UK is one of the few large countries that are intellectually honest and recognise that abusive
BEPS practices can be addressed by the UK domestic tax law as opposed to attacking the internationally
recognised sovereign rights of countries to have a
largely consumption- based tax regime.
Mr. Speaker, the UK created the UK Diverted
Profits T ax, which is outlined in the UK’s Finance Bill
2015, and has the stated aim to (and I quote) “‘counter the use of aggressive tax planning techniques used by multinational enterprises to divert profits from
the UK to low tax jurisdictions, ’ ultimately tryin g to ensure that no business with UK operations can achieve
an ‘unfair ’ tax advantage. ”
This measure introduced a new UK tax on d iverted profits. The UK’s diverted profits tax operates through two basic rules. The first rule counteracts arrangements by which foreign companies exploit the
permanent establishment rules in DTAs and in d omestic income tax laws. The second rule prevents
companies from creating tax advantages by using
transactions or entities that lack economic substance.
Mr. Speaker, the UK’s diverted profits tax r egime became applicable from the 1
st of April 2015,
and, as I just mentioned, its second rule prevents
companies from creating tax advantages by using transactions or entities that lack economic substance.
Mr. Speaker, the UK diverted profits tax regime does not attack the jurisdictions where transactions or ent ities that lack economic substance are domiciled.
Mr. Speaker, large countries have the ability
to do what the UK has done, but instead they have launched an unprovoked attack on us. Mr. Speaker, I
say “unprovoked” because if you have the power to prevent your residents from avoiding your domestic income tax by simply revising your own domestic i ncome tax law, how are you provoked to attack a low -
or no- income tax jurisdiction that has cooperated with
the OECD for decades by signing up to every tax i nformation exchange agreement the international community of income tax countries has created?
Mr. Speaker, to further prove my point the E uropean media outlet, Law360 Tax Authority , reported
on November 30, 2018, that “a representative of Google, Inc. recently told EU lawmakers the company
would be phasing out a Bermudian structure after r ecent tax changes in Ireland and by the OECD remove
the tax incentive for us to use it.”
Mr. S peaker, instead of attacking Bermuda,
Ireland made tax changes , and the OECD created
BEPS to force all of the world’s DTAs to stop abusive
tax treaty shopping.
Mr. Speaker, Bermuda’s centuries old consumption- based tax regime is not responsible for i ncome tax countries loss of their income tax revenue.
BEPS and the much- publicised EU state aid investigations against their own members is proof of that. Mr.
Speaker, if one seeks further proof The Guardian in
London reported on 13 October 2014, the headline,
“Ireland to close ‘double [Irish’] tax loophole.” And the
498 17 December 2018 Official Hansard Report

Bermuda House of Assembly article leads with “ Apple and other multinationals
based in Ireland are to be given a four -year window
before the phasing out of a scheme that cuts their tax
bills.”
Mr. Speaker, one can now see more clearly
the connection to a comment attributed to Google on
November 30, 2018 to which I referred a few minutes
ago. Mr. Speaker, I encourage Google, to whom Bermuda has been a good host for years, to keep the
current scope of your company in Bermuda, i n Be rmuda. And help your host domicile by establishing the
economic substance as required by the EU to your companies that are currently in Bermuda. We will
work with you, and with all of our international bus iness stakeholders, to fulfil our collective objective to
remain compliant with the EU’s standard and event ually the global community standard for economic substance.
Mr. Speaker, last year on December 5, 2017,
the EU listed 17 jurisdictions as non- cooperative tax
jurisdictions with a list, which many refer to as the “blacklist,” changing several times since then, as
some of the listed jurisdictions met commitments set
by the EU and were delisted, and some were added to
the list and then taken off. Mr. Speaker, Bermuda has
never been listed on the EU’s list of non- cooperative
jurisdictions, the EU blacklist. But this decision by the
EU not to adopt an approach similar to that of the UK
diverted profits tax has placed the world’s low - or noincome tax jurisdi ctions on the cusp of a watershed
precipice by including low - or no- income tax jurisdi ctions on the EU’s watchlist, the so- called “grey list.”
Mr. Speaker, after months of public specul ation, the EU ECOFIN, on 22 June 2018, finally pub-lished what is known as the “2.2 scoping paper” setting out the economic substance requirements that
must be adopted by low - or no- income tax jurisdi ctions. Mr. Speaker, ECOFIN is a short name for the
European Union’s Economic and Financial Affairs
Council, the members of whi ch are the economic and
finance minis ters of all 28 EU member states.
Also relevant European commissioners parti cipate in their meetings. ECOFIN meetings generally take place once a month. ECOFIN is responsible for
EU policy in areas of economic policy, t axation issues,
and the regulation of the financial markets in capital
movements, as well as economic relations with countries outside the EU. ECOFIN takes decisions by a
vote of ministers from the member states.
Mr. Speaker, there are three types of votes in
the EU institutions, depending on the European U nion’s Lisbon Treaty provisions for the subject being dealt with. It is a simple majority of procedural dec isions, qualified majority, a weighted voting system
based on the populations of member stat es used for
many decisions concerning the internal markets, ec onomic affairs and trade, and unanimity for foreign pol icy, defence, judicial and police cooperation and tax ation. I emphasise “unanimity.” Mr. Speaker, though public speculation about
the EU’s intentions were rife, and all low - or no -
income tax jurisdictions were monitoring events of this, 22
nd June 2018 was the first time that a concrete
published EU criterion emerged as an official doc ument of ECOFIN; the first time we knew exactly where the goalposts had been set.
Mr. Speaker, Bermuda’s government tec hnical officers have been in constant dialogue with the Code of Conduct group and its partner EU body, the
European Commission, even before the 22
nd of June
of this year. Several further meetings have taken
place post June 22nd to endeavour to ensure Berm uda’s legislation meets the requirements of the 2.2 scoping paper.
Mr. Speaker, this economic substance legisl ation being debated today is necessary to protect Ber-muda’s status as an internationa l business centre,
and we will continue to lead in complying with global
standards. I have already stated that the EU standard
will eventually be replaced by the OECD’s global
standard, and it is Bermuda’s hallmark that we comply
with global standards. Mr. Speaker, we are confident
that we can avoid any adverse designations regarding
our tax regime, and the structures set by the EU. And
if the EU throws more curveballs at us early next year,
we will adjust and adapt our regulations in order to continue to d efend Bermuda’s interests.
Mr. Speaker, it was said to us, This is a take -
it-or-leave- it situation. Notwithstanding this aggressive
posture, we believe that from this difficult situation can
come something positive.
Mr. Speaker, among the positive aspects emanating from this situation are (1) this will level the
playing field across jurisdictions, and (2) the OECD
will eventually take over the administration of the su bstance regime, thus making it the global standard. While the origins and pathways of this substance r egime toward achieving the status of a global regime
could have, in our view, been handled a bit better,
Bermuda has always embraced global, or international, standards.
We will seek opportunity from this by continuing to market Bermuda’s attr ibutes as a blue- chip i nternational financial centre.
Mr. Speaker, having in these opening comments spoken for and to our people, Mr. and Mrs.
Bermuda, who will be impacted by this legislation, and
our valued international business community, I trust my c omments were not too long, but I felt that a Bill of
such significance requires nothing less.

Thank you, Minister.
Does any other Member wish to speak?
We recognise the Honourable Member —

Hon. Curtis L. Dickinson: Oh, Mr. Speaker, sorry.
Sorry. Sorry.



Bermuda House of Assembly The Speaker: Member, would you yield to allow the
Minister just a closing point?

[Inaudible interjection]
Hon. Curtis L. Dickinson: Mr. Speaker, my apol ogies. I took a pause a little bit too long. I have still got three more pages to go.

Thank you.

Hon. Curtis L. Dickinson: Mr. Speaker, this Bill will
impact Bermuda’s business community, and by extension Mr. and Mrs. Bermuda, in several ways:
• By imposing an obligation on an entity, d omestic or international, involved in relevant activities as defined in the Bill to maintain an
economic substance in Bermuda. And in that
regard, comply with economic substance r equirements set forth in the Bill. Though the substance obligations will apply as well to l ocal or domestic entities, the obligations will
apply only to the extent that a local entity is
one that in engages in a relevant activity.
• Establishing requirements to file information
through the Registrar of Companies [ROC] by
way of an [economic] substance declaration
form, and any other appropriate forms deve loped by the ROC.
• Providing for the tax treaty competent author ity for Bermuda under the International Coop-eration (Tax Information Exchange Agre ements) Act 2005, to exchange required information with EU member states, provided
there is an agreement with the relevant EU
member state in place under the said 2005
Act.
• Requiring regulations to be made that will
provide more detail on the substance regime
and whereby such regulati ons will be subject
to the negative resolution procedure to enable
the Minister to move quickly to address any required details to ensure continued compl iance with the EU standard, even when the Legislature is not in session.
• By applying certain provisions of the Registrar
of Companies (Compliance Measures) Act
2017 which prescribed criminal penalties for
breach of confidentiality and specifies limited
circumstances where the disclosure of information is permitted.
• By providing for the issuance of guidance in
such manner as the Registrar of Companies
thinks fit.
• By providing for offences in penalty provisions
set forth in the Registrar of Companies (Compliance Measures) Act 2017, in respect of the
sanctions which will be applied where an ent ity is determined to have failed to comply with
the economic substance requirements and
subject to the required prerequisites, and ult imately to apply to the court to prevent the entity from continuing to carry on business, and
ultimately result in the exercise of power to
strike -off the entity.
• By providing for transitional matters that apply
a six -month transitional period for existing e ntities, but the substance regime will immediately apply to new entities registered after this
Act comes into operation on January 1, 2019.
Mr. Speaker, in- scope business activities r eferred to in the Bill as “relevant activities” for the purposes of this new regime include banking; insurance;
fund management; financing; leasing; headquarters; shipping intellectual properties; holding companies;
and distribution and service centres.
Mr. Speaker, with respect to certain regulated
industries where the applicable regulatory framework
already includes heavy substance requirements in
500 17 December 2018 Official Hansard Report

Bermuda House of Assembly Bermuda (such as banking and insurance) such ent ities that co mply with these existing regulatory r equirements will be deemed to have sufficient evidence
of compliance with the new economic substance r egime. However, this sufficiency will not include the
fund sector, and I will go into detail on this in the
Committee phase.
Mr. Speaker, the economic substance [r egime] will apply to new companies from 1 January 2019 and existing companies from 1 July 2019.
Mr. Speaker, thank you, and now I am done.

Uh-huh.

Hon. Patricia J. Gordon -Pamplin: —and the flo wers
that you expect.
But, Mr. Speaker, let me say that, firstly, I
would like to thank the Minister for sharing his brief with me because when we have something of this i mportance and of this magnitude on the horizon for
Bermuda, it is very, very important that we are as c ooperative with each other so that we can support that which the Government needs to do.
Mr. Speaker, let me commence my comments
by saying that it must be tremendously frustrating for
the European Union and for the countries that are
members of the European Union to realise that a
place as small as Bermuda has the ability to stand on
the world stage, to punch above our weight, and to maintain a blue- chip jurisdiction which has appealed
to so many companies over the years.

Mm-hmm.

Hon. Patricia J. Gordon -Pamplin: We have done it
in a way that they wished that they could have. We have done it with a taxation structure that has worked
for our jurisdiction, which has not fallen afoul, and has
not encouraged any company to register or operate
here which is not as pristine as the reputation that we want to maintain.
Mr. Speaker, I can say that periodically legi slation comes before the Honourable House that de-mands unanimous bipartisan support. We saw a sim ilar approach in the s ummer when we had to have an
additional sitting to be able to agree with the CFATF requirements in order to make sure that we were not
falling afoul of the regulations and rules pertaining to
that particular issue. And we met it, Mr. Speaker. This
Bill tod ay, the Economic Substance Act is another
such example.
This Bill, fortunately, had intense information
sessions in which the technical officers assisted us in
the Opposition of examining the content of the Bill so
that we were fully apprised of the impli cations and of
the urgency. The tech team, in my opinion, Mr. Speaker, has given yeoman service to our country in ensuring that the legislation has reached the stage
where it is today. They have literally jumped through
moving hoops of fire. And in so doin g, Mr. Speaker,
every time they thought that we had reached where
we needed to be, the EU Code of Conduct Committee
changed the goalposts, and we had to respond, and
we had to comply, and they have done it. And they
have worked, I would say, 24/7, 365–– perhaps not
quite that much, but I am sure they feel as though they have.
So for that, Mr. Speaker, I believe that it is i mportant that we as an entire House express our si ncere thanks to the committee, to the tech team, who
have worked so assiduously in order to ensure that
we have reached the standards that are necessary
with this legislation.
Mr. Speaker, the burdens that have been
placed upon our jurisdiction were necessary for us to bear because without it, Bermuda would be blacklis ted if we are seen to be hosting companies that may
not show that they have sufficient substance in r espect of the physical presence that has been required
to satisfy the OECD and the EU. According to the Mi nister’s brief, Mr. Speaker, the challenges are not just
Bermuda’s to face. But as a country we pride ourselves on being able to maintain a position on the cutting edge of regulation, not just for our own standards
but internationally.
Mr. Speaker, notwithstanding the additional
steps that were needed in order to meet the standards
imposed, we have to examine the opportunities that


Bermuda House of Assembly arise from this exercise. We are up against, as the
Minister indicated, extremely tight deadlines, in that
legislation and supporting regs have to be in place by
December 31st. Companies that are registering as
from January 1, 2019, will be subject to the new r egime. Existing companies have a six -month trans itional period by which the regulations and the rules
will be applied to them.
I do not know any country, Mr. Speaker, who
is happy when somebody tells them to jump, we ask, How high?, when we are already on the way up. But
that is what we have been faced with in this particular
legislation and the demands which have been placed
on our jurisdiction, based on the necessity for this. So
we can pr ide ourselves in not just meeting great reg ulatory standards in isolation, but that we can meet i nternational standards and continue to hold our place on the stage with far larger jurisdictions.
Mr. Speaker, you will know that blacklisting
threats are no t new to us. It has not been too long ago
that the former Finance Minister, the Honourable E. T.
Richards, as well as the [former] Premier Cannonier,
along with [former] Premier Dunkley, found themselves in situations of having to go and be toe- to-toe
and face- on-face with a French jurisdiction because
they decided that Bermuda needed to be blacklisted.
They had the opportunity to push back. This Gover nment has also continued to maintain our reputation
and our requirements internationally to ensure that blacklisting is not our lot. We have the responsibility to
our jurisdiction and to our people, Mr. Speaker, to ensure that our country continues to be held in high esteem and in good regard for the regulations that we employ in order to ensure that we do the things that
are needed.
Mr. Speaker, one might question, What are
some of the opportunities? Well, the Minister indicated
in his brief, having economic substance in Bermuda,
effectively means that you have got to physically set up shop. You have to be seen not to be a shell company; you have got to setup shop. In setting up shop,
what are some of those opportunities? We will find
that companies will require, perhaps, rental spaces. They will require significant staffing––and maybe si gnificant to their nee ds. I do not think that it is expected
that they go above and beyond to bring in bodies just for the sake of bringing in bodies, but they will have to
employ people significant to their needs, Mr. Speaker.
And it is also important to recognise that if a
company . . . and let me just back up one second to
say that having a presence is based on a company
carrying out the relevant activity that is delineated in the legislation. So let me just say, Mr. Speaker, that
many companies already conform to that requi rement.
And we have, as the Minister indicated, other
standalone legislation—such as banking legislation
and insurance legislation —that demands in and of
itself the necessity to have a physical presence in order to show economic substance. So, the regulati ons that will append to the Act that we are debating will
actually provide a carveout for those industries by vi rtue of the fact that they are required under their own
specific legislation to comply. For that, the impact on some of our larger insurance com panies, will not be
that significant because they are already required to conform [to this] based on their separate legislation.
Mr. Speaker, it is important as we go through
this that the Government advises the public. The Mi nister wanted to speak to Mr . and Mrs. Bermuda. It is
important that we look at how we accommodate the
need for new companies or new compliances, to be
able to staff their entities to comply with the legisl ation. It may mean that there has to be a certain relax ation when it comes to immigration. We may find that
there might not be sufficient talent on Island at the
moment . . . insufficient numbers to adequately meet
the demand which will be required by this Act.
I just want to say that we have to be mindful
that when we look at immi gration as an issue, we
cannot succumb to creating a frenzy because it is a good talking point. We have to ensure that we have the vision that supports the needs of the country. And
so it may be necessary to bring people in and to have
an immigration polic y that accommodates in the short
term an atmosphere which permits these companies
to be able to comply with these new requirements.
Mr. Speaker, some of these very people who
may be required to come in under different immigr ation policies are going to be the ones who help us
save our bacon, in terms of the requirements that they are placing upon us as a jurisdiction to be able to conform with this new legislation. Mr. Speaker, it is going
to be important that companies are able to have boots on the ground in short order. And in the same way in
which we were able to respond to the legislation to
ensure that companies fulfil what they have to do, we
also have to conform and respond to the requirements
to ensure that companies can have the necessary
boots on the ground as they comply, as time goes forward.
Mr. Speaker, I do not wish to be naïve in assuming that all of the positive points of this legislation would be the only challenge that we have in its i mplementation, because I think it would be naïve if we
did not address the fact there could conceivably be some downside. And I say “some downside.” I do not
want anybody to believe for a second that I am thinking that the sky is falling, because I believe that we
have shown our ability to rise above, but I t hink we
have to be realistic. There may be some companies, Mr. Speaker, who elect not to continue their presence
in Bermuda for varying reasons. While they may be
engaging in some of the relevant activities, they might
start to look at some of their options to relocate onshore as the new United States administration is star ting to make things look a little bit more appealing to
them, and they may start to reconsider.
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Bermuda House of Assembly But that is okay, Mr. Speaker. And I say it is
okay, not because I want to embrace the fac t that we
may have some job losses in the process, but it is
okay if it means that someone has to leave in order for
us to be able to maintain that level of excellence that is expected of us as a jurisdiction, and on which our
basic economy is built.
Mr. Speaker, I know that some of the recent
mergers and acquisitions which have occurred in the insurance industry . . . it is imperative that we continue
to closely monitor and that we look at any possible
diminution in the workforce that is likely to arise f rom
that phenomenon coupled with what is going to be
required here as companies consider whether they
wish to use the six -month transition to comply to a
new standard or whether they choose to relocate
elsewhere.
We heard the Minister give an appeal to
Google, to whom we have been incredible hosts, and
as opposed to them taking advantage of an opportunity to say that they will relocate, to invite them to con-sider staying and setting up and meeting the substance requirements that are outlined in the necess ities of this Act.
So, Mr. Speaker, I believe that when this legislation is enacted, we can make lemonade out of the
lemons that we have been dealt. We will continue to
be a jurisdiction where transparency is the key. We
will continue to say that we can ha ve the information
exchange that we have been known for. And if there
are more TIEAs that have to be signed, we will obv iously comply and conform with that requirement, Mr.
Speaker. Because I think that once all is said and done, when the dust has settled, and when we have
implemented this legislation and we have jumped
through the hoops, as we said, not just as a technical
team but as a country, once that is all said and done,
when the dust settles, I believe that Bermuda will be
considered in the light in which it has always been,
once we went into the international business arena, and that is a jurisdiction that is well regulated.
Mr. Speaker, the one thing that obviously
gave me a little cause for pause because of the d emands was that of the requirement for information on beneficial ownership. Now, we know that this has
been an extreme sticking point. If the idea of benef icial ownership is one that is going to . . . or the r equirement is one that is going to be applied across the
board internationally s o that every country ranks
pari passu with the next, then perhaps we can say we
do not want to fall below that standard. But we have
been asked to do things which other countries larger than us, with more resources than ours, do not have
to do. They do not have to do these things, Mr.
Speaker. And it is very interesting that because of our
jurisdiction, and obviously with the threat that we pose to the stability of some of these larger countries who
think that their tax base has been eroded because of
Bermu da’s excellence and they just have not figured out how to effectively respond. So they have come
with a club, and with, you know, the bully attitude to which the Minister referred, to say, You will do things
our way. And because we have no choice in this m atter, Mr. Speaker, we will do things their way and we
will get them at some point to understand that even
though we will do things [their] way we will still find a
way to outstrip and to excel because it is what we do.
We know how to respond, Mr. Speaker , to
challenges. We have seen it from the advent of our
international companies’ business. We have seen it across various administrations and we recognise what
is needed in order for our 21 square miles to stay
afloat. And we will examine ways in which our responsibilities are maintained on an effective basis.
Mr. Speaker, in closing, I would want to say
that we support the legislation because, as I said, we
have no choice. We will continue to work together with
the Government. We will support the Governm ent in
its bid to keep us from being blacklisted, [which would] thereby create a detriment to our economic success. It
would be remiss of me in closing though, Mr. Speaker, if I did not also express appreciation to the companies
who have gone through the c onsultative process and
given their input and given their fears and given their
observations and the realities that they will face on a
practical basis, and recognising that they have a very short time within which to comply. It may not neces-sarily be easy for them, but I believe that when we all
work together and when everybody lifts together, the
load will be lighter than if we were lifting alone. Thank
you, Mr. Speaker.

Thank you, Honourable Member.
Does any other Honourable Member wish to
speak?
We recognise the Premier. Premier, you have
the floor.
Hon. E. David Burt: Thank you, Mr. Speaker.
Mr. Speaker, I would like to first thank the
Minister of Finance who has done stellar work over
the past month to get us to this particular point. He
took over the brief from me, and as he sometimes
says, he feels like he is drinking out of a fire hose.

Hydrant.

Hon. E. David Burt: Hydrant —fire hydrant, sorry.

[Laughter]

Hon. E. David Burt: Such is the nature of Gover nment, c learly. But I also want to thank the technical
officers who are here inside of the Chamber. With the
Business Development Unit, and the Attorney General’s Chambers, and the Bermuda Monetary Author ity, and the Ministry of Finance and all those who have
been literally working around the clock to make sure


Bermuda House of Assembly that we are here today to pass this very important
piece of legislation.
In addition, Mr. Speaker, I would also like to
make sure I thank, not only the technical officers who
are here, but also the persons inside of industry who
have been very helpful over the past year as we have
been dealing with this particular threat, and those who
would be on the Insurance Advisory Council who advise the Minister of Finance and have been working
closely with the Ministr y on these particular matters.
Mr. Speaker, this has not been an easy pr ocess at all. And after much discussion, numerous trips, conference calls, and communications with the
European Union, we are at this point on a Monday.
Today’s debate is without question an important one, and many such debates are taking place in special
sessions in Assemblies throughout the Overseas Territories, as we look to meet the political commitment
that was given by myself and other fellow Overseas
Territories leaders last ye ar to the European Union.
The conversations amongst Premiers and
Ministers of Finance of the Overseas Territories have
been constant. We all recognise that this process has
been less than ideal; however, we are here today, Mr.
Speaker. And today we are going to pass legislation
which some fear may be the end of Bermuda. Well, I
want to make it very clear, Mr. Speaker, that I am sure that all 36 Members who sit inside of this House will
make sure that this is not the case.
Because we have an international standard
which we have to live up to, and as international standards are changing, Bermuda as an international
financial centre must continue to play its particular part. The only thing is, Mr. Speaker, in this particular
case, what we are doing is not necessarily in r esponse to an international standard. What we are d oing is in response to the European Union who has
decided that due to whatever political pressures they
are facing at home, that this is the best way to a ddress this particular situation.
The issue is, Mr. Speaker, that we are clearly
transparent in our taxes. We are clearly transparent
with the information of which we share. And we are compliant with the latest international standards. The
truth of the matter is that it is not tax changes [i n Be rmuda] that are going to address the challenges which
are needed, but it is tax changes and laws that are
going to be required in other jurisdictions and not
ours. However, as those changes seem to be difficult,
they seem to have taken a differ ent appr oach, and
this is the approach [which] they have [ended up with] .
The global financial system, Mr. Speaker, in
my opinion, works best when it is done in a way where
there is consensus across all countries and all regions
of the world. The OECD Global Forum is the correct
structure for this. However, for whatever reason, the European Union decided to go outside of that remit
and push ahead. As the Minister of Finance has noted, the OECD is looking to adopt a lot of the items that are inside of the EU standard to apply to a new
global standard. But that global standard is not here.
So we are now being subject to what many of us have
found to be a subjective process.
The process has not been clear, Mr. Speaker,
and it has been difficult. The European Union di d not
issue guidance until July on this particular matter,
even though this process has been ongoing for a
while. So it was not until July that clear guidance was
issued from ECOFIN. After that, and as the Gover nment and industry worked together to fashion legislation, it seemed as though they were continually
chang ing views, as other people said, the continuously moving goalposts. And I said, Mr. Speaker, Berm uda is not unique, as this has been the experience of
many other countries which have been unfairl y targe ted by the European Union, and, as I said, the conversations between ourselves and other Overseas Terr itories, has been constant.
Mr. Speaker, this will represent a change to
the way that we do business. There is no question about it. But for it to be successful, it must be fairly
applied to all countries. And the assurance that I want
to give to industry that are listening, and for those persons who have been customers of Bermuda for a very
long time, what I will make sure to ensure is that we
will check to ensure that this is fairly applied to all
countries, Mr. Speaker. Because the European Union has said that there will be no exceptions, we will look
to ensure that there will be no exceptions, Mr. Speaker. If Bermuda is going to make changes, then the
rules that apply to us have to apply to everyone else, because I am certain that this Parliament will not allow
ourselves to be put at a competitive disadvantage,
based upon what other countries are doing. And so for
that, it is very important.
So I want to give that assurance to industry,
that we are going to watch and ensure that this is going to be fairly applied across the board to all coun-tries. And if it isn’t, then we might have to have anot her discussion, Mr. Speaker. And there might have to
be additional changes. Because there cannot be a
case where certain countries are put at a competitive
disadvantage to others due to a system which, as we
have found out, has not been the most fair and/or transparent system, a system which even some persons inside the European Union have recognised has
not been a fair and/or transparent system, that there
are some things which are being applied to third cou ntries which are not being applied to their own partic ular country, Mr. Speaker. And so, for that, duri ng the
transition period, we will take a very careful [look] to
ensure that this process in being implemented in a fair
fashion.
However, Mr. Speaker, we have to accept,
and as I explained when I had meetings with the I nsurance Advisory Committee and the w ider consult ative group of about 40 persons, global standards are
changing. And they are constantly changing. Twenty
504 17 December 2018 Official Hansard Report

Bermuda House of Assembly years ago there were such things as secret bank accounts, where no one knew, and they were just accessed by a number. That is not the case nowadays.
And that will not be the case going forward. There will be a continued evolution of global standards. And this is just one of those particular steps.
What we have to do, Mr. Speaker, is that we
have to collectively figure out how we are going to
meet this particular challenge. I am gratified by what
seems to be the recent consensus from industry here
locally that is emerging, which has stated, as long as these items are fairly applied to all countries, there are
opportunities for Bermuda to grow. And there are opportunities for additional jobs and economic activity
inside of Bermuda due to the quality of our jurisdiction. But that can only be the case, Mr. Speaker, if these
items are applied fairly to all countries.
What I want to say, Mr. Speaker , is that just
like when there was US tax reform last year, and
when the Government met with industry and assured
them that if any approvals were needed to facilitate either the relocation of staff or anything to make it
easier to make a success, I would s ay, of these particular changes, the Government will listen and act
accordingly. Because I am sure what all of us want,
inside of this Chamber and inside of this country, is for
there to be more jobs and for there to be more ec onomic activity.
There are s ome who have said that economic
substance can be a benefit to Bermuda. I can agree
with them. But we also have to recognise that it will be
a significant change and there will be some companies that will elect not to continue their presence in Bermuda. Thi s is something that we have to reco gnise, Mr. Speaker, and that is something that will be a
fact. What we have to do, however, Mr. Speaker, is
work collectively. And I say that very often because
items, such as today, and unhelpful headlines that
have been read that can create uncertainty inside of
our industries, is not where we need to be.
So, I want the listening public, I want the
Members of the Government and the Opposition and
you, Mr. Speaker, to understand that this Government will lead collectively in this effort working with industry
to ensure that this fundamental change is a success. We will do whatever is required to ensure . . . whether
or not that is meeting with the highest levels of the
affected companies. The Business Development
Agency and ourselves are already formulating a strategy in order to do this. The Business Development Agency have already been meeting with affected
stakeholders, fine- tuning our messaging out of this to
say, What are we going to say to the world to let them
know what these changes mean and how these
changes can be a benefit? We are going to continue
that work and that effort, Mr. Speaker, because it is
essential.
Change is never easy for anyone, And for this
it will mean a fundamental shift in many companies, in many law firms, in many accounting firms, in many
service providers, and many people in the trust and private client areas, et cetera. However, we will meet
this challenge, Mr. Speaker. And part of the way we
will meet this challenge is by making sure that t he
Government makes the investments in technology to
make sure that these new processes are not overly
burdensome, that we can make them quick, and that
we can make them efficient. It will cost money, Mr.
Speaker. It will require an investment. But for an inte rnational financial centre like ours, we have to be there
to make sure that we are keeping up with the standards.
And the other thing I want to say, Mr. Speaker, is that there has also been discussion as to whet her or not we can start forming regional bodies of c ooperation to share some of these compliance burdens which may make it a little bit easier for us to compete
and will make it less burdensome on some of the
countries that are affected.
This, Mr. Speaker, is not easy. This is not
something that we would have done under our own
volition. But as long as international standards are
changing and as we hold ourselves to be the premier
international financial centre, we have to keep up with
them. Our insurance industry is too valuable to risk
being p laced on any European Union list, and we will
not be on any European Union list, Mr. Speaker. We will continue to remain in these good graces and this
Act is another step in that particular direction.
So, in closing, Mr. Speaker, I wish to congratulate, again, the Minister of Finance. I wish to thank
the numerous officials who have worked night and day
to get us to this point. And what I will say, Mr. Speaker, is I will call for unity, not only inside of this Chamber, [but also] inside of the business community, and
everyone else. Over the next six months we must
make this regime work. This Government will lead that
effort and we expect to have all hands on deck to en-sure that we can make a success of it. Thank you, Mr.
Speaker.

We created a model that has
been successful. We have created a model that has
worked for years, and we are known, among other things, as being a jewel in t he Atlantic.
Mr. Speaker, because the OECD taxes its
people heavily and they do not like the fact that peo-ple who do have money are able to transfer their
wealth to other jurisdictions [where] they can be
charged lower taxes, they want to vilify the inter national financial centres. So they bully us into compl ying with taxes, as others have spoken today, which
they do not apply to themselves.
Now, Mr. Speaker, the EU has not managed
their affairs in a way that has been financially viable,
and so they are t urning to the international finance
centres to sponsor them. So they started out with the UBO [Ultimate Beneficial Ownership] Register, they
started out with us complying with all kinds of KYC
[Know Your Customer] regulations, and this whole process, Mr. S peaker, has been a progression.
We started with TIEAs in 2009. Then we
started with FATCA in 2010, and UK FATCA, the
common reporting standard in 2017, country -bycountry reporting, the UBO Register started in 2013,
and now we have EU substance. And just to, Mr. Speaker . . . I want to just address the level of hypocrisy that the OECD and the EU have applied to us in terms of what we are required to do. And I would just
ask for Members’ patience —