Bermuda’s political and economic elite are responding to the G7’s call for a minimum corporate tax, like the approaching hurricane in the Atlantic. Officials are trying to weather the storm – and keep intact a 19th-century revenue system that leaves corporate profits untouched.
In an interview with the Financial Times, Bermuda’s Treasury Secretary Curtis Dickinson said he refused to introduce new levies while the island’s tax haven, with around 64,000 people, is still struggling to escape from both the Covid-19 pandemic and to recover from the 2008 financial crisis.
“Bermuda has the right to determine what it believes is an appropriate tax regime for its jurisdiction,” he said.
“We have had a system for 200 years. It’s not perfect. It does require some adjustments. But we would like to do this alone and not let someone tell us to change our system to conform to a global initiative … I would say it is a matter of sovereignty. “
Taxing corporate profits would make Bermuda more bureaucratic and add complexities to the business, Dickinson said, threatening its role as a global hub for reinsurance, which insurance companies buy to protect against claims arising from hurricanes, wildfires, and other disasters. Bermuda is currently increasing revenue through taxes on payroll and property, duties and fees that are billed to international businesses.
“The current Bermuda tax system … is based on consumption – it’s a feature that is easy to manage and submit,” he said. “This is the system we put in place … It wasn’t changed to encourage people to move here. It was what it was. The system works for us. “
Pressure on tax havens increased this month as the G7 countries closed loopholes multinational corporations were using to lower their tax burdens and agreed a minimum global tax of 15 percent on corporate income. However, whether something will actually change depends on broader global negotiations – meaning the impact on Bermuda remains hypothetical.
The sensitivity of the subject quickly becomes clear to a visitor to Hamilton. In more typical times, the Bermudian capital has all the oomph of a place where the locals brag about the large number of actuaries in the neighborhood. Ask questions about taxes and corporate lips will tighten even more. Both trade associations and leading companies either avoid replies or refer inquiries to Dickinson.
A man of carefully chosen words, the Treasury Secretary is a former Wall Street investment banker who worked for companies like Donaldson, Lufkin & Jenrette, and Credit Suisse First Boston before taking office. He graduated from Morehouse College, Atlanta, the historically black institution from which Martin Luther King Jr. received his bachelor’s degree, and from Columbia University’s Business School.
Dickinson argues that it is unfair to group Bermuda with tax havens that have more corporate mailboxes than people. He said it was an “anomaly” when Google transferred tens of billions of dollars through its Dutch holding company to Bermuda over the past decade under an intellectual property licensing program called “double Irish Dutch Sandwich”. Google canceled the agreement, which could delay the payment of US taxes.
Thanks to its tax system and tight regulatory system, Bermuda has become a real financial center, said Dickinson. The tall buildings of the leading insurers – including AIG, Chubb and BF&M – tower over the capital. Recent additions include Conduit Re, which raised $ 1.1 billion last year through a listing on the London Stock Exchange, and Vantage, a reinsurer that will sell $ 1 billion in equity from Carlyle, Hellman & Friedman in 2020 and its management was established.
“We want companies here that have boots on,” said Dickinson.
The response to climate change gives reinsurers an additional boost. Andrew Engler, CEO of Kettle, a start-up that uses machine learning to better understand forest fire risks, said he started his holding company in Delaware and started his Bermuda operation to be closer to the action – and to one Regulatory system that can act faster than the US state licensing regime.
“It’s very well structured,” says Engler, a Californian who also finds the mild weather in Bermuda pleasant. “You have this crazy island that is probably the most important climate change financial market we can all imagine.”
Dickinson’s challenge is that Bermuda’s economy is “undiversified,” as he puts it. Reinsurance and other “international business activities” accounted for around a quarter of the gross domestic product in 2019, as the official statistics show. Leisure and hospitality in the tourist area known for its turquoise sea, on the other hand, generated around 4 percent.
For Bermuda, the question arises as to how tax-sensitive its reinsurers could be. Donald Trump’s tax changes in 2017 have already made it less attractive for US insurers to buy reinsurance from Bermuda. It remains to be seen whether levying corporate taxes would nullify the regulatory benefits of doing reinsurance on the island.
“This is definitely not going to be a good thing,” said Brian Schneider, an analyst at Fitch Ratings. But he added, “It doesn’t seem enough to destroy the whole purpose of being on the island.”
Bermuda officials, for their part, do not want to be rushed. Adjusted for inflation, GDP in the fourth quarter was 4 percent below the previous year’s figure. Dickinson said Bermuda officials tried to tell their counterparts in larger countries that now is not the time to shake things up.
“We are, of course, concerned that there is a unified approach that may not work for everyone,” he said. “We have had a sustained period of low economic growth and the idea of introducing more taxes is, in my opinion, tantamount to braking the economy.”
Dickinson’s position is all the more uncomfortable as it is not only foreigners who have concerns about Bermuda taxation. In 2018, the government’s own Tax Reform Commission highlighted the need for change after meeting more than 50 stakeholders, including local and international companies.
“A recurring theme with almost all stakeholders was that the Bermuda tax structure was neither fair nor equitable,” the report said. “There was a consensus … that the Bermuda tax structure places a disproportionate tax burden on those who can pay the least.”
Despite its appeal to international corporations, the system is tough on working-class Bermudians, who say their most important taxes come in the form of high prices on imported goods. When the conversation turned to paperback subjects a few nights ago at Harry’s Bar, a popular Hamilton pub for actuaries, a bartender let a visitor into the joke.
“It’s not a tax haven, it’s a hidden tax,” he said as he served his thirsty customer a $ 12 glass of beer. – Copyright The Financial Times Limited 2021