BERMUDA Law and Practice Contributed by: Natalie Neto, Rachel Nightingale and Tyson Oladokun, Walkers
fund management, financing and leasing, holding entity) would need to satisfy in order to register and maintain registration in Bermuda. By ensuring compli - ance with the Economic Substance regime, Bermuda as a jurisdiction ensures that the use of Bermuda as a place of registration and incorporation is not solely for tax benefit purposes and that there is a substan - tial level of economic activity being carried out by the entity in Bermuda. 4.4 Transfer Pricing Issues for Inbound Investors The biggest transfer pricing issue for inbound inves - tors operating through a local corporation is the adjustment to corporate income tax in Bermuda. The CIT Act introduced the arm’s length principle, which requires transactions between constituents within the same In-Scope MNE Group to be recorded by refer - ence to the conditions that would have been obtained between independent enterprises in comparable transactions and under comparable circumstances. 4.5 Challenges to Related-Party Limited Risk Distribution Arrangements Prior to the enactment of the CIT Act, there were no challenges by authorities in Bermuda to the use of related-party, limited risk distribution arrangements for the sale of goods or provision of services locally. However, since the enactment of the CIT Act, the arm’s length principle provides that any transaction between a BCE and another constituent entity of the same group must be recorded in the same amount in the financial accounts of the BCE and the other con - stituent entity. This has been adopted to ensure prof - its reported in Bermuda reflect real economic activity, and to ensure consistency in financial reporting across BCE Group entities. 4.6 Local Transfer Pricing Rules and OECD Standards The local transfer pricing rules and enforcement in Bermuda are generally aligned with the OECD stand - ards, although they differ in relation to the recognition of pre-regime losses and the method of calculation. The CIT Act allows in-scope entities to calculate the opening tax loss carry-forward based on any losses incurred over a prior five-year period to offset future
profits. The GloBE Rules do not have specific pro - visions directly facilitating carrying forward losses but rather rely on the deferred tax provisions in the accounts. 4.7 Transfer Pricing Disputes and Mutual Agreement Procedures It is anticipated that the CITA will be more aggressive with respect to transfer pricing following the enact - ment of the CIT Act, as prior to this there was no local tax authority nor was there any corporate income tax. As a result of its traditional status as a zero-corpo - rate income tax jurisdiction, Bermuda does not have much – if any – experience with Mutual Agreement Procedures (MAPs). The frequency with which MAPs and transfer pricing disputes are resolved remains untested, given the corporate income tax regime has only recently become operative. 5. Taxation of Non-Local Corporations 5.1 Compensating Adjustments There is no explicit Bermuda statutory mechanism for transfer pricing compensating adjustments when a transfer pricing claim is settled. Instead, the CIT Act requires that related-party transactions are conducted on an arm’s length basis for corporate income tax pur - poses. 5.2 Local Branches and Local Subsidiaries There is no standalone separate tax regime or different statutory rate specifically for local branches of non- local corporations compared to local subsidiaries of non-local corporations. Whether or not local branches of non-Bermuda corporations are subject to corporate income tax will depend on whether they meet the defi - nition of a Bermuda Permanent Establishment. 5.3 Capital Gains of Non-Residents Bermuda does not, directly or indirectly, impose tax on capital gains of non-residents on share disposals. 5.4 Tax Implications of Change of Control Under the CIT Act, a change of control does not itself trigger corporate income tax. Corporate income tax only applies to the taxable income of a BCE; it is not
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