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Bermuda’s tax perks for reinsurers under threat from OECD reform: Fitch

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Bermuda’s advantageous tax status for (re)insurers will be reduced at the margins if a recent multilateral agreement to create a 15% global minimum tax rate goes ahead as planned, Fitch Ratings has warned.

The second pillar of the Organisation for Economic Co-operation and Development’s inclusive framework on base erosion and profit shifting (BEPS) will mean the net profitability gap between Bermuda and other jurisdictions will narrow over time, the agency said, although overall Bermudian domiciles will retain some benefits.

Despite the planned change, Fitch said it does not anticipate any near-term ratings actions among Bermudian carriers as a result of the agreement.

The island’s established position in the global market will continue to be beneficial to carriers, thanks to a strong regulatory regime, Solvency II equivalence and reciprocal jurisdiction status with the US, Fitch said.

The ratings agency noted that Bermuda successfully withstood the Tax Cuts and Jobs Act of 2017 that lowered US corporate tax from 35% to 21% and established the base erosion and anti-abuse tax.

The act reduced tax advantages for companies incorporated in Bermuda to a greater extent than is expected for the 15% global minimum tax rate, Fitch added.

The agency said Bermudian carriers have enough time to make the appropriate adjustments before the 15% minimum tax is implemented, although it added that the current 2023 target effective date was “aggressive” given the number of companies that must pass legislation.

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