Economic Substance Update

Economic Substance Update

About Jeremy LeeseJeremy Leese

Jeremy’s practice focuses on corporate finance, mergers and acquisitions, corporate reorganisations and restructurings, banking and international real estate finance, structured finance, as well as regulatory and legislative compliance.

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Bermuda was removed from the European Union (“EU”) list of non-cooperative tax jurisdictions at the 17th May, 2019 meeting of the Economic and Financial Affairs Council (“ECOFIN”). Bermuda’s commitment to implement tax good governance was confirmed in ECOFIN’s official statement, which recognised that Bermuda has “adopted additional amendments to its economic substance regulations on 4 March 2019, thereby resolving the last area of concern” and that the EU’s Code of Conduct Group had reviewed Bermuda’s legislative amendments and concluded that it had “implemented its commitment to introduce substance requirements under Criterion 2.2”. On such basis, Bermuda is not now liable to the imposition of any sanctions.

Speaking in the House of Assembly on Friday, the Minister of Finance of Bermuda, the Hon. Curtis Dickinson JP MP, confirmed that the jurisdiction “has now been placed on the “grey” list, meaning being placed in Annex II of the EU list. This reflects the need to further expand our legislative framework in this area, to include the EU’s economic substance requirements for collective investment funds (“CIVs”). He went on to confirm that “the Bermuda Monetary Authority CIVs experts have already engaged in several discussions with the EU Commission on these matters. They will continue to cooperate with the EU with respect to the adoption, by the end of this year, of an economic substance framework for CIVs that is acceptable to the EU.” The “grey list” also includes, at present, jurisdictions such as the Cayman Islands, the British Virgin Islands and the Bahamas, which also must address during 2019 similar EU concerns with regard to CIVs.

The Economic Substance Act and the Economic Substance Regulations came into force on 31 December 2018 and the compliance deadline for existing entities remains 1 July 2019. Clients with Bermuda entities need to assess their structures and identify any potential compliance issues. We anticipate that detailed guidance notes will be issued in late May/early June which should further assist in such analysis.

We, at MJM, can help you with any queries you may have with regard to the ambit of, and compliance with, Bermuda’s economic substance regime. If you would like our assistance, please do not hesitate to reach out to Jeremy Leese or Brian Holdipp.