Media Centre Comment: Canada TIEA creats captive opportunity

Robert Eastham

Canada TIEA creates captive opportunity

Robert Eastham outlines the new tax information exchange agreement between Bermuda and Canada, and considers the implications of the agreement for the captive market

On July 1, the new tax information exchange agreement (TIEA) between Bermuda and Canada came into force. The agreement, which was initially signed on June 14, 2010, is the first TIEA to be implemented between the two countries and the 24th TIEA to be entered into by Bermuda.

The new agreement serves to significantly enhance the potential appeal of Bermuda to Canadian corporations with existing captive operations or those seeking to establish new self-insurance structures. Under its terms, the dividends of foreign affiliates resident in Bermuda which are paid to their Canadian parent companies from income earned in the domicile are exempt from Canadian taxation.

From an insurance perspective, Bermuda currently has strong ties with Canada, with over 25 Canadian insurers based in the domicile. However, while the captive is already a standard component of the risk management frameworks of many Canadian corporations, the domicile of choice to date has been Barbados, which has benefited from the income tax agreement signed between the two countries in 1980.

The new TIEA now "levels the playing field" and provides Canadian companies further reason to take advantage of the numerous benefits available from domiciling in Bermuda. The island offers the combination of an extremely mature captive market; a globally-respected regulatory framework facilitated by proactive, open and experienced regulators; an all-encompassing marketplace which provides access to leading captive managers, reinsurers, law firms, accountants etc.; and an outstanding international reputation. A further factor which will greatly bolster the attractiveness of the market is its proximity to Canada and ease of access, with flight times from Toronto under three hours.

In addition, Bermuda also offers greater scope in terms of the business that can be written through the captive than many of the other domiciles which currently host the captives of Canada-based parent companies. The question now will be the extent to which Bermuda is not only able to attract new self-insurance business from Canada to the island, but also whether the captive pull of the domicile will be sufficient to drive a wave of redomiciliations, which in Bermuda is a tried and tested legal process known as a continuance.

Based on the strong interest that the TIEA has already generated it can be expected that growth will be a combination of both components.

The introduction of the TIEA is the result of the hard work of a broad range of participants in the Bermuda financial sector. This collaborative effort has included the Bermuda Monetary Authority, the Ministry of Finance, the Bermuda Stock Exchange, Business Bermuda, the Bermuda Insurance Management Association and a wide spectrum of organisations across the business community.

This collaboration is reflective of the unified approach to creating a successful business environment for all parties on the island, and is one which we fully believe will help to build a strong market for the captives of Canadian companies.

Robert Eastham is Managing Director of Kane (Bermuda) Limited.
Email: robert.eastham@kane-group.com