05 February 2025

Bermuda releases public consultation for CIT enforcement provisions

  • The Bermuda Government has opened a Second Public Consultation period with a focus on the proposed Corporate Income Tax (Penalties) Act.
  • The consultation provides illustrative draft legislation and insight into how the recently enacted Bermuda Corporate Income Tax will be enforced, including a wide range of proposed civil and criminal penalties.
 

Executive summary

On 31 January 2025, the Government of Bermuda began a second public consultation (Second Public Consultation) concerning corporate income tax (CIT) administrative provisions. The Second Public Consultation primarily addresses enforcement provisions associated with Bermuda's recently enacted CIT. The three-week consultation period runs from 31 January to 21 February 2025.

The Second Public Consultation is presented in four parts. An introduction is followed by an overview of the proposed Corporate Income Tax [Penalties] Act (the Proposed Act). The third part contains illustrative draft legislation for the Proposed Act and the fourth part contains a preliminary table of contents for additional proposed administrative regulations.

A third public consultation (Third Public Consultation) is expected to commence in February 2025 to address remaining administrative provisions in the form of regulations.

Background

In December 2023, the Bermuda Parliament passed legislation enacting a 15% CIT regime that became effective for tax years beginning on or after 1 January 2025 (the Principal Act). (See EY Global Tax Alert, Bermuda Parliament passes legislation to enact a 15% corporate income tax, dated 22 December 2023.)

The CIT will apply to Bermuda Constituent Entities (BCEs) that are part of multinational enterprise groups with annual revenue of €750m or more (In-Scope MNE Group).

In July 2024, Parliament passed the Corporate Income Tax Agency Act 2024 (the Agency Act), which establishes a Corporate Income Tax Agency (the Agency) to administer the CIT regime.

On 7 August 2024, a first public consultation (First Public Consultation) related to CIT administrative provisions was released to provide stakeholders with a summary of the proposed tax compliance framework. (See EY Global Tax Alert, Bermuda releases public consultation for CIT administrative provisions, dated 15 August 2024.)

Detailed discussion

The Proposed Act introduces two new parts in the form of amendments to the Principal Act. The Government of Bermuda has also announced that another opportunity for public consultation will be provided when a further public consultation is released, in the form of proposed regulations discussing several remaining administrative provisions. This Third Public Consultation is expected to commence around the middle of February, and it is anticipated to address: registration and general administration; payment of taxes; filing of returns and enquiries; and guidance related to assessments, clearance and disputes.

Penalties - generally

Part 8A (Civil Penalties) focuses on penalties related to the failure to comply with compliance deadlines, penalties for failure to pay tax when due, and failure to state the tax accurately on the tax return. In deciding whether to impose a civil penalty and the amount of the penalty, the Agency will consider the conduct of the In-Scope MNE Group, including whether relevant guidance was followed, the amount of tax due as a result of the conduct subject to penalty, and the content and timeliness of responses to Agency enquiries.

All BCEs that are members of the same In-Scope MNE Group will be jointly and severally liable for civil penalties imposed on any BCE. These civil penalties are separate and distinct from any interest charges related to the underpayment of tax. The penalty provisions in the Proposed Act overlay those interest charges in situations where further enforcement is appropriate.

Civil penalties — failure to register

The First Public Consultation proposed that BCEs would be required to register and provide entity-specific information to receive a Taxpayer Identification Number. In addition to basic information, it was expected that information regarding the parent entity and the broader related group would be required. To simplify the process, the registration process was addressed, in part, through the Corporate Entities [Miscellaneous] Amendment Act 2024, which amended the registration and declaration requirements from the Bermuda Registrar of Companies to add questions to capture information necessary for the registration process. A penalty not to exceed 10,000 Bermudian dollars (BD$10k) per BCE may arise where a BCE has failed to register without reasonable cause.

Civil penalties — failure to file

The Proposed Act provides for a failure to file a tax return penalty of either BD$3k per month past the due date, or 5% per month of the tax due, whichever is greater. The latter is capped at 25% of total tax due with no limit on the fixed monthly amount. For these purposes, tax due is calculated as tax as calculated under the CIT net of any tax credits, less payments on account plus any interest owed thereon.

Civil penalties — accuracy

An accuracy-related penalty in the Proposed Act addresses understatements of tax arising from negligence, carelessness, recklessness or intentional disregard of the Principal Act resulting in a substantial understatement of tax. A "substantial understatement" is an understatement that exceeds the lesser of 20% of the tax that should have been reported had the understatement not occurred or BD$10m. The penalty is up to 20% of the understated amount.

The amount of any understatement will be deemed reduced by the portion of the understatement attributable to any for which there is substantial authority or any item for which the relevant facts affecting the item's treatment are adequately disclosed on each tax filing in which the position is taken. "Substantial authority" refers to reliance on authority from one or more of the delineated sources in which the authority acknowledges more than a reasonable basis for the treatment but does not necessarily establish that the treatment is correct on the balance of probabilities. The designated sources include: the Principal Act, the Agency Act, or any regulations made there under; decisions of the Court; determinations by the Agency; or official guidance or "frequently asked questions" issued. (For background, see EY Global Tax Alert, Bermuda releases additional FAQs for guidance on corporate income tax regime, dated 22 November 2024.)

The Agency will not impose accuracy-related penalties if the BCE had reasonable cause for its position and acted in good faith. For these purposes, any advice the BCE receives from professional tax advisors shall be considered in determining reasonable cause.

Civil penalties — failure to pay tax when due

If a BCE or BCE Group fails to timely pay its tax by the due date, a penalty of 0.5% of the tax due may be levied. For these purposes, tax due is calculated as tax is calculated under the CIT, less net tax credits, less payments on account (including partial payments after the due date) plus any interest owed thereon.

Part 8B (Criminal Penalties) of the Proposed Act focuses on penalties associated with the CIT that are deemed criminal in nature.

Criminal penalties — personal liability

The Proposed Act extends the liability for any offense committed to any employee, director, manager, secretary, member or other officer to the extent the offense can be proven to have been committed with the consent of said individual or attributed to any neglect on their part. Similar provisions apply the liability of a partnership to its partners, unless either the partners were unaware of the offense or attempted to prevent it. Analogous provisions apply to trusts, unincorporated bodies or other associations.

Criminal penalties — deliberate failure to file return

The proposed guidance provides that failure to file a tax return within six months after its due date will be considered a criminal offense if the failure to file is deemed intentional. A conviction may result in a fine of up to BD$5m or imprisonment for up to six months, or both. The associated liability is joint and several for all BCEs that are members of the same In-Scope MNE Group.

Criminal penalties — tax evasion

A final penalty-related provision in the Proposed Act provides for criminal penalties if any BCE evades or attempts to evade any payment of tax, makes a false or misleading statement in writing to the Tax Agency (in a tax filing or otherwise) with the intent to evade any payment of tax, or by any fraud evades or attempts to evade payment of tax. The resulting fine may be up to 100% of the tax sought to be evaded or imprisonment for up to five years, or both. The liability is joint and several for all BCEs that are members of the same In-Scope MNE Group.

Request for comments

The Bermuda Government invites public comments and requests for further clarification on the administrative proposals presented in the Second Public Consultation. Comments received after 21 February 2025 may not be considered.

Implications

The Second Public Consultation provides a broad proposal on how the CIT will be enforced, including through civil and criminal penalties. Multinational groups with Bermuda operations should carefully review the Second Public Consultation and consider submitting comments to the Bermuda Government.

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Contact Information

For additional information concerning this Alert, please contact:

Ernst & Young Bermuda Ltd.

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

Document ID: 2025-0395