CEO states the case for corporate tax
A top insurance industry boss believes that a tax on company profits is inevitable — and would be in the long-term interests of the Island’s people and its economy.
John Charman, the chairman and chief executive officer of Bermuda-based Endurance Specialty Holdings Ltd, said the levying of corporate tax would disarm international critics who regard the Island as a tax haven.
If phased in over the long term after consultation with the business community, Mr Charman believes it would not lead to a mass exodus of companies, but could potentially create a more sustainable international business environment — if accompanied by the removal of protectionist barriers.
“I do believe that the pressure on our global companies to relocate will become much greater over the next decade because those companies will continue to be negatively affected by regulatory and tax authorities around the world,” Mr Charman said in an interview with The Royal Gazette.
“In order to rebalance our global financial status reputation we need transformational change in Bermuda. In my view there is, and should regrettably be, an inevitability about Bermuda introducing some form of corporation tax.
“If that should occur, I would like to see a 25-year phasing-in period, which would allow a progressive tax to be applied but also allow which parts of our economy it should be applied to. The mere adoption of corporation tax will immediately disarm the continuous threats from the Organisation for Economic Cooperation and Development as well as our foreign government critics.
“Such a tax could be progressively introduced over that long period and could reach a level of other low cost tax jurisdictions of around 10 per cent. The ultimate level should be determined by our government after consultation with all business interests.
“I truly believe that such a transformational change would square away many of our external issues and pressures and enable us to be on a more level platform with our heavyweight international critics.”
Government, struggling under the burden of nearly $2.2 billion of outstanding debt, gets the lion’s share of its revenue from payroll tax and Customs duty. Bermuda’s zero per cent tax rate on corporate profits is part of the Island’s appeal to international business.
So would Bermuda insurers pack up and leave for the Cayman Islands if corporate tax were introduced?
“I believe not,” Mr Charman said. “Bermuda is fortunate to possess a proven infrastructure that companies value. It provides both legal and political stability; it is geographically convenient for Europe and the US; and it is and will remain extremely tax efficient even if it were to introduce some measure of corporation tax.
“Of course there would be a lot of noise around the introduction of the new tax but I believe that the initiative will be quickly recognised to be in the best long-term interests of the Island while still keeping its globally competitive edge.
“The worst result that could occur from the introduction of this new tax would be the resulting revenue being squandered by Government, something that would be completely unacceptable to the business community and would be the catalyst for the mass exodus.”
During these hard times, corporate tax may find supporters among the local business community — provided that other taxes are reduced at the same time. The emphasis on payroll tax as a major source of Government revenue means businesses pay a similar amount of tax whether or not they make a profit. With Bermuda-based international companies’ annual profits measured in the tens of billions of dollars, even a very low rate of corporate tax could raise a significant amount and would appear tempting to an indebted Government.
However, Mr Charman said businesses would want to see the tax introduced as part of a wider modernisation of the economy, including a review of the entire tax system, in order to counterbalance the impact of the new tax.
“I commend the Government in making progress to remove many of the protectionist and artificial barriers to employment on the Island, thereby making work permit applications easier and faster,” Mr Charman. “This in turn makes it easier to do business in Bermuda.
“The reality is that Bermuda is still a ready and obvious target for the developed countries of the world to attack. As attack is the best form of defence in their cases, I do not believe that anything is going to change in the near future unless we bring about fundamental positive change to Bermuda.
“We need a stronger, broader and more open economy built around the pillars of our insurance and reinsurance industry. Doing so will strengthen the overall economy of Bermuda.
“The protectionism, both obvious and concealed, that operates here should be carefully but quickly dismantled. It is inappropriate and unjustified in a global trading environment. Historically, such actions may have been well intentioned. However, though unintended, a great deal of harm can be done by continuing to expose ourselves to the never-ending hostilities coming from other much stronger and more important jurisdictions.”
The introduction of corporate tax would allow Bermuda to strengthen its international position as a business centre.
“Importantly, it would allow us to renegotiate many of our fragile tax treaties and it would result in a much more positive business climate than the one we face today,” Mr Charman said.
“We really do have a wonderful opportunity to create a sustainable business environment that is robust, competitive and attractive. We must also ensure that this new future benefits all parts of our society while at the same time significantly raises the capabilities of our local workforce.”
Mr Charman, who founded Axis Capital Holdings Ltd in the wake of the 9/11 terrorist attacks in 2001, does not expect to hear resounding backing for his views on corporate tax among his C-suite peers.
“You may not find many of my peer group CEOs supporting my views, for one significant reason,” Mr Charman said. “They are not true stakeholders in Bermuda. Most of the CEOs in the financial services sector here fly onto the Island on Monday and leave on Thursday.
“It is not a criticism but a fact. I am one of the very few CEOs who have made this Island home. I actually live here, have bought my house here and I care deeply about the Island and its people.
“I have a strong vested interest in the long-term success and well-being of Bermuda. That is why I can put forward these transformational views. I am a stakeholder not a lodger. Bermuda is my home and I continue to work towards preserving all that is good whilst preparing for the ever-changing future.”
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