Executive summary

On 12 September 2025, the Corporate Income Tax Agency Bermuda began a second public consultation (Second Public Consultation) concerning a second set of proposed technical amendments to the Corporate Income Tax Act 2023 (CIT Act). The Second Public Consultation primarily intends to clarify certain provisions, better align the CIT Act with the Global Anti-Base Erosion (GloBE) Rules as appropriate and make some clerical and administrative corrections. The two-week consultation period runs from 12 September to 26 September 2025.

The Second Public Consultation is presented in three parts. An introduction is followed by a summary of the technical amendments to the CIT Act. The third part contains illustrative draft legislation for the Proposed Technical Amendments (Proposed Amendments).

Background

In December 2023, the Bermuda Parliament passed legislation enacting a 15% corporate income tax (CIT) regime that became effective for tax years beginning on or after 1 January 2025. (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 (MNE) groups with annual revenue of €750m or more (In-Scope MNE Group).

On 29 May 2025, a first public consultation (First Public Consultation — Technical Amendments) related to technical amendments was released to provide stakeholders with technical corrections to clarify provisions and better align certain provisions with the GloBE Rules. (See EY Global Tax Alert, Bermuda releases first public consultation for CIT technical amendments, dated 11 June 2025.)

Detailed discussion

The following is an overview of the proposed technical amendments to the CIT Act contained within the draft legislation.

Shock losses

The proposed amendments to Section 6 of the CIT Act introduces a provision for the treatment of shock loss tax carryforwards. This allows companies to utilize tax losses arising during periods defined as "shock loss events" (i.e., significant loss events that profoundly affect an insurer or underwriting company's financial stability) more effectively in future tax years. Specifically, the amendment permits a shock-loss tax-loss carryforward deduction of up to 100% of taxable income for the fiscal year, overriding the usual 80% limitation. The term "shock loss tax loss" and what constitutes such a loss is expected to be defined in forthcoming regulations.

Excluded entities

A proposal to amend Section 10 of the CIT Act includes a new subsection that clarifies the treatment of subsidiaries of excluded entities. The proposed amendments state that if a subsidiary of an excluded entity borrows funds from third parties to make direct acquisitions of assets, including ownership interests in other entities, this borrowing and acquisition will be considered as holding assets and investing funds for the benefit of its excluded entity parent. Additionally, an entity will not be deemed to fail the activities test in the excluded entity definitions because of this activity.

Allocation of adjusted creditable foreign taxes

The proposed amendments address the allocation of adjusted creditable foreign taxes to and from certain BCEs. The adjustments are intended to align with the provisions in the Pillar Two Model Rules, as supplemented by the Commentary and Administrative Guidance.

To the extent that the owners of a BCE are subject to a controlled foreign company tax regime, the adjusted creditable foreign taxes of the BCE's direct or indirect owners under a controlled foreign company tax regime on their share of the BCE's income would be allocable to the BCE under the proposed changes.

Adjusted creditable foreign taxes of a non-Bermuda main entity related to taxable income or loss allocated to a Bermuda Permanent Establishment are allocated to that Bermuda Permanent Establishment under the proposed changes.

To the extent that a BCE is the owner of a tax-transparent entity, that entity's adjusted creditable foreign taxes related to taxable income or loss attributable to the BCE will be allocated to the BCE. Similarly, for hybrid entities, the adjusted creditable foreign taxes of the hybrid entity's constituent-entity owners that are related to taxable income or loss of the BCE will be allocated to the BCE. Finally, the amount of any adjusted creditable foreign taxes of a direct owner of the BCE related to distributions from the BCE will be allocated to the BCE.

BCEs' adjusted creditable foreign taxes may also be allocable to entities that are not BCEs. If a BCE is the main entity and a branch exemption election has been made, the BCE's adjusted creditable foreign taxes related to the taxable income or loss of a permanent establishment are allocated to that permanent establishment under the proposed changes. Similarly, to the extent a BCE is a tax-transparent entity and taxable income or loss is allocated to a non-BCE owner, the adjusted creditable foreign taxes would also be allocable to the owner. Similar treatment applies for BCEs that are owners of hybrid entities. Finally, any adjusted creditable foreign taxes of the BCE that are related to distributions from another entity the BCE owns would be allocated to the distributing entity.

Fiscal year mismatches

Discrepancies in fiscal years between Ultimate Parent Entities (UPEs) and BCEs may result in inconsistencies in income and tax calculations. The proposed amendments allow the BCE to use financial statements for a period falling within the year adopted for consolidation purposes at the UPE. However, care should be taken to ensure there is no double counting of any item of income or loss.

Taxable income adjustments related to tax credits

The adjustments propose that a BCE's taxable income or loss for a fiscal year will be adjusted regarding qualified refundable tax credits. Any income or expense related to substance-based tax credits, community development tax credits and other qualified refundable tax credits included in financial accounting net income or loss would be excluded from the determination of taxable income or loss for the fiscal year. Furthermore, the accrued benefits from these credits would be included in taxable income or loss.

Adjustments to financial accounting net income or loss for pension

In relation to modifications proposed to pension expense or income, tax adjustments would be made by excluding any pension expense or income reflected in financial accounting net income or loss for the fiscal year, deducting contributions the BCE made to pension funds during the fiscal year, and adding surplus distributions received from pension funds, but only if those funds were in a surplus position at the time of distribution. These adjustments would apply solely to pension plans provided through a pension fund and do not pertain to pension expenses or income related to other arrangements, such as direct payments the BCE made to former employees.

Reciprocal shipping exemption

If a Bermuda Permanent Establishment's main entity is located in a foreign jurisdiction that does not impose income tax on certain revenue categories earned by a BCE from shipping operations, the financial accounting net income or loss for the fiscal year will be adjusted under the proposed changes. This adjustment involves excluding revenue categories that are either identified in the foreign jurisdiction's income tax laws as excludible for income tax purposes or described in Article 8 of the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention, provided the foreign jurisdiction's laws do not specify excludible categories. Additionally, expenses incurred by the Bermuda Permanent Establishment related to these revenues would also be excluded.

Economic transition adjustment and deferred tax liabilities

Adjustments to the calculation of the Economic Transition Adjustment (ETA) are intended to align the treatment of deferred tax liabilities (DTLs) under the CIT Act with the OECD's January 2025 Administrative Guidance. Under these proposed adjustments, if the ETA's mechanical calculation for a particular asset or liability results in a DTL, that calculation is set to zero, thereby removing the DTL.

Other changes

Hedging provisions are proposed to be revised to align with the OECD guidance issued in February 2023. A five-year election would permit foreign exchange gains or losses from net investment hedges to be excluded from income if they satisfy certain criteria. This adjustment aims to eliminate distortions in taxable income caused by currency fluctuations.

Request for comments

The Corporate Income Tax Agency Bermuda invites public comments and requests for further clarification on the proposed technical amendments to the CIT Act presented in the Second Public Consultation. Comments received after 26 September 2025 may not be considered.

Implications

The Second Public Consultation reflects the Bermuda Government's and Corporate Income Tax Agency Bermuda's commitment to stakeholder feedback and provides clarification and amendments that reflect the intent of the CIT Act. Multinational groups with Bermuda operations should carefully review the Second Public Consultation and consider submitting comments as well as recommendations for additional guidance.