BERMUDA Law and Practice Contributed by: Natalie Neto, Rachel Nightingale and Tyson Oladokun, Walkers
triggered by share disposals, whether direct or indi - rect. However, stamp duty may be triggered in certain change of control circumstances, including: • the direct transfer of shares in a Bermuda local company and certain instruments relating to Ber - muda assets; and • the transfer of shares in a company that directly or indirectly holds Bermuda real estate which results in a change of control or economic ownership. 5.5 Formula-Based Income Attribution Under the CIT Act, taxable income is determined based on the financial accounting results, adjusted as required by the arm’s length principle. 5.6 Deductibility of Intra-Group Management and Administrative Charges A deduction for payments is allowed to the extent that it is at arm’s length, relates to services actually rendered and provides a demonstrable benefit to the affiliate. This is consistent with the OECD’s transfer pricing rules. 5.7 Restraints on Related-Party Borrowing Related-party borrowing by a foreign-owned affiliate is permitted, but deductions for interest and related financing costs are tightly constrained. Constraints include arm’s length pricing, and substance and com - merciality restrictions. 6. Taxation of Foreign Income of Local Corporations 6.1 Foreign Income Exemptions Under the CIT Act, foreign-sourced profits are not automatically exempt simply because they are for - eign. The tax is generally imposed on the net taxable income of Bermuda-based entities, which will include profits, whether domestic or foreign, unless specific exclusions apply. Foreign tax credits are available to reduce the Ber - muda tax liability for taxes paid to other jurisdictions, subject to limitations. Some specific types of income
or industries may benefit from exclusions, but there is no blanket exemption for all foreign-sourced profits under the CIT Act. 6.2 Non-Deductible Local Expenses There is no general rule in the CIT Act disallowing local deductible expenses merely because they are appor - tionable to foreign income. Similarly, local expenses are not automatically non-deductible simply because the associated income arises from foreign sources or qualifies for a statutory exclusion. They remain a part of the overall income and expense calculation, and only specific statutory adjustments can deny deduct - ibility. 6.3 Dividends From Foreign Subsidiaries Bermuda does not have controlled foreign corporation rules that would apply to tax a Bermuda parent entity on the income of its foreign subsidiaries. Dividends received from foreign subsidiaries would not generally be subject to tax in Bermuda. 6.4 Taxation of Intangibles Developed by Local Corporations Bermuda does not impose the automatic attribution of foreign subsidiary profits. Intangibles developed by a Bermuda company and used by a foreign subsidi - ary may give rise to Bermuda corporate income tax liability to the extent that value is attributed to the BCE by application of the arm’s length principle. 6.5 Controlled Foreign Corporation-Type Rules Bermuda does not adopt CFC-type rules that tax a local corporation on the income of its non-local sub - sidiaries as it is earned. However, the position is dif - ferent where a Bermuda company operates overseas through a branch (permanent establishment) rather than a subsidiary. In this instance, the profits of non- local branches are treated as the profits of the Ber - muda corporation and may be taxed on the current attribution basis. 6.6 The Substance of Non-Local Affiliates Bermuda does not impose economic substance rules on non-local or foreign affiliates, although local branches or agencies of a non-local affiliate (which
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