Bermuda should not be seen as another country’s tax collector
Bermuda was once more caught up in an indiscriminate hail of fire loosely aimed at offshore financial centres this week after the global coverage of tax avoidance by wealthy people known as the Panama Papers. Bermuda was not mentioned in the stories that emanated from the leak of 11.5 million files from Panamanian law firm Mossack Fonseca, but that did not stop bullets flying our way amid the international outrage that followed.
Most notable was the call from Jeremy Corbyn, the leader of Britain’s opposition Labour Party, for the UK to impose direct rule over its Overseas Territories, Bermuda included, to tackle the tax-avoidance problem. Then there was the cartoon, in The Daily Telegraph newspaper, which depicted a man reading a newspaper emblazoned with the headline “Panama Tax Havens” and saying “there is a triangle in Bermuda where all our money goes”. And Bob Richards, Bermuda’s finance minister, was grilled by Kirsty Wark of the BBC’s Newsnight programme on international tax-dodging issues, even though the island’s name was conspicuous by its absence from the Panama files.
It seems that, no matter that we have jumped through almost every hoop the international community has asked us to, many continue to think of Bermuda as a tax haven, first and foremost. Our key defence is that we have tax-transparency agreements with more than 90 countries, including the UK, which allow them to access information on any individual or company they suspect of dodging taxes or hiding assets for criminal reasons.
Of course, Bermuda and its financial services operators have responsibility for doing their due diligence and ensuring that we know who we’re dealing with. We have to be satisfied that we are not helping anyone to launder ill-gotten gains or to finance terrorists.
But no other country should expect Bermuda to be their tax collector. It is Britain’s job to identify and collect British taxes due. Where we can help is by providing information on suspected tax evaders, as our transparency agreements require.
Mr Corbyn’s suggestion that the Overseas Territories should “obey UK tax laws” does not make any sense, to put it politely. Bermuda has its own tax laws and raises government revenues in ways that successive democratically elected governments have deemed appropriate for this community. No, we do not have income tax or a tax on corporate profits, like Britain does. Building the bureaucracy necessary to administer such a system would be expensive and difficult to justify for a population of about 64,000. As every resident knows, we pay plenty of taxes in other ways.
What then would Mr Corbyn seek to impose on us? Probably even he does not know. His comments appeared half-baked and aimed more at rousing popular support among British voters than at seriously addressing the international tax-avoidance issue.
The notion that Britain can simply override Bermuda’s constitution and ignore the views of the island’s people to impose its own tax laws is arrogant, undemocratic and even imperialistic. However, we cannot afford completely to ignore Mr Corbyn’s remarks when he has a shot at becoming Britain’s Prime Minister one day.
Tax avoidance is a problem that major countries will continue to have. The wealthy will hire accountants and lawyers to work out legal means for protecting their wealth as best they can. Companies will continue to channel profits through low-tax jurisdictions and indulge in transfer pricing to trim their tax bill. Their directors have a fiduciary responsibility to shareholders, and if their competitors are gaining an advantage through tax avoidance, they are obliged to follow suit. The system not only allows tax avoidance, it incentivises it.
Every time egregious examples of tax avoidance emerge, accusatory fingers instinctively point offshore. Media organisations pull out their logo of the desert island with palm trees, just as Newsnight did for the backdrop of the interview with Mr Richards, leaving their readers and viewers with no doubt as to where the problem lies. Of course, that is a simplistic view.
The real solutions lie onshore, not offshore.
For example, if a country such as Britain wants Google and Starbucks to pay taxes commensurate with their local profits, it can change its laws to make it so. Why should Britain complain about other countries aiding and abetting avoidance of UK tax, if the tax dodgers are doing nothing illegal? British lawmakers can make it illegal if they want to.
Bodies such as the Organisation for Economic Co-operation and Development recognise this, even if populist politicians and media who tar all offshore jurisdictions with the same brush do not. The OECD is focused on its Base Erosion and Profit Shifting Project with the goal of ensuring that “profits are reported where economic activities are carried out and value created”. Leaders of the G20, the world’s largest economies, have endorsed this approach, aimed at closing the loopholes that allow the elaborate corporate structures that some multinationals use to systematically avoid taxes.
Bermuda has less to fear from these developments than the jurisdictions at the top of the Panama tax havens list. While there have been cases of companies that channel profits through the island using entities with no employees and a law-office address, such as Google, the island loses much more in reputational damage than it gains in company fees from such examples. We would be better off without them.
Our insurance and reinsurance market is our jewel in the crown. It employs real people, plays a beneficial role in the global economy and has built up an unmatched cluster of expertise in this industry. Solvency II equivalence from the European Union provided recognition that our insurance regulation reaches the highest of international standards. This is much more than a legitimate business; it is a world leader.
And one thing that Mr Corbyn, The Daily Telegraph and Newsnight may have missed in their rush to accuse all things offshore is that while Bermuda was not on the top-ten list of tax havens in the Panama Papers, Britain was. And among the countries home to the most intermediaries involved in the tax-avoidance dealings, Britain placed second.
An old saying about glass houses and stones springs to mind.
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