Separating fact from tax-haven fiction
Tax evasion is illegal everywhere. What’s called “tax avoidance” is, of course, not only legal but the cornerstone of thriving speciality practices at any number of leading — and some not-so-exemplary — law firms around the world.
Many brilliant legal minds have spent many thousands of man hours — and made many thousands of fortunes for their clients and themselves — playing the increasingly complex game of hare and hounds with various national tax authorities to keep wealth one step ahead of their governments’ outstretched hands.
Consider such Byzantine but perfectly legal gambits as the so-called “Double Irish With A Dutch Sandwich” technique. This is the strategy that allowed Google to move $12 billion in non-US revenue through Ireland and the Netherlands to a Bermudian-based, Irish-registered affiliate in 2014, allowing most of the multinational technology giant’s foreign income to remain tax-free.
But the tax evaders/tax avoiders dichotomy is fast becoming a distinction without a difference to an increasing number of outraged politicians, pundits and, indeed, rank-and-file citizens in an increasing number of countries.
Corporate and individual tax avoidance have been rising to the top of political agendas in the so-called Rich Nations Club for a number of years now. Revelations such as those contained in the recent Panama Papers dump of millions of files of a particularly unsavoury law firm, which facilitated international tax avoidance schemes, will ensure that clamping down on micro-jurisdictions branded as “tax havens” remains a priority for many countries in the foreseeable future.
Bermuda has very good reason to feel more sinned against than sinner when we are routinely included among those offshore financial centres that benefit not only from tax avoidance but also criminal activities, including tax evasion, money laundering and sanctions busting. But we shouldn’t expect the present criticism to let up, certainly not anytime soon.
Economic recovery remains elusive or, indeed, entirely illusory, for the populations of many countries badly hit by the Great Recession of 2008.
So tales of freeloading companies and billionaires stashing their untaxed loot on offshore treasure islands don’t play out at all well.
Those whose taxed incomes have remained stagnant and whose purchasing power has continued to dwindle for most of the past decade are increasingly clamouring for the ultra-rich to pay their fair share of the tax burden. They are also asking for white-collar financial criminals to be prosecuted to the full extent of the law, rather than simply named and shamed, as is so often the case now in newspaper reports or television documentaries.
And the politician who ignores these calls does so at his own peril, given untold billions of dollars continue to flow out of the economies of developed countries into low-tax regimes every year. It’s not just multinational corporations and the wealthiest citizens of the richest countries who avail themselves of what are broadly termed “tax havens”.
Kleptocrats who have looted the treasuries of some of the world’s poorest countries also routinely use offshore companies and jurisdictions to hide their money trails.
One British commentator mordantly remarked recently: “With fortunes sloshing freely across borders, tax havens became voracious parasites on the world economy, most seriously sucking the life out of some of its poorer parts.
“All the great national robbers of recent decades [have] used tax haven companies as the getaway cars.”
Although predicated on strict regulatory oversight and transparency, Bermuda’s offshore financial services sector has suffered from an unfortunate kind of guilt by association with less scrupulous jurisdictions ever since the industry’s accelerated growth spurt got under way in the late 1980s.
Never mind that Bermuda’s primary international business focus is on insurance and reinsurance, not the altogether more buccaneering world of banking, and that the island has a stricter and more efficient regulatory infrastructure in place than many much larger jurisdictions. The island’s name has, at times, been in danger of becoming a synonym for “tax haven”, a byword for sleaze and international financial crime. And on occasion, those doing the name-calling have been very highly placed indeed. We should not forget one of the key economic planks in US Secretary of State John Kerry’s ill-fated 2004 presidential campaign was directed specifically at Bermuda. Arianna Huffington, before she poured her not inconsiderable creative and self-promotional energies into online journalism and ended up coming here to sell her books, attempted to close us down as a financial centre, leading a citizen-activist campaign called “The Bermuda Project”. And, most recently, Jeremy Corbyn, Britain’s Labour Party leader, drew no distinction whatsoever between Bermuda and other, more laxly regulated British Overseas Territories that operate offshore financial services industries, calling on David Cameron to reimpose direct rule from London and to shut down our international business infrastructure.
The Prime Minister, not for the first time in recent times, came to our aid, mounting a robust defence of Bermuda. But seven years after world leaders came together at a post-financial crisis G20 summit in London and committed to end tax haven abuse, it’s clear that no such end is yet in sight.
Now faced with a mounting list of grievances from voters about having to live in increasingly economic unequal societies and confronting increasingly strapped national exchequers, leaders such as Cameron cannot necessarily be counted on to always speak out on our behalf. There are no votes for him, after all, in Bermuda.
In fact, in the immediate aftermath of the Panama Papers revelations, leading international finance ministers gathered in Washington to warn low-tax regimes that if they fail to co-operate with new transparency standards, they will face “defensive measures” from countries that represent 85 per cent of the global economy.
Bermuda, of course, has long since met — and, indeed, surpassed — these standards. But as Corbyn’s stinging critique demonstrated, that’s no guarantee Bermuda can avoid being tarred with the same undiscriminating tax haven brush that the G20 is now wielding.
Unfortunately, the global financial services sea that Bermuda jumped into three decades ago, when we opted to make international business the mainstay rather than the main adjunct of our economy, is subject to such periodic spells of extreme turbulence.
No number of personal interventions by the likes of David Cameron, even if they continue to be forthcoming, can necessarily ensure that we turn back the flood tide now threatening above-board jurisdictions, along with altogether sleazier financial centres.
Nor can any number of polite but firmly worded letters such as the one from Bermuda’s Premier to Corbyn or polished, poised and informative TV appearances like our finance minister’s recent turn on BBC’s Newsnight — when Bob Richards did not so much deflect as completely demolish tax haven allegations lazily being levelled against Bermuda in the wake of the Panama Papers leaks.
But that’s no reason to let up our efforts. In fact, we literally cannot afford to do otherwise. For not only is our economic survival dependent on international business, but the reality is Bermuda is an asset to the global financial system, not a drain on it.
Bermuda is now the third largest insurance and reinsurance market in the world, a key player in that multibillion-dollar global industry. And the island’s long-established and highly regarded financial services sector, as the Financial Times recently reported, also allows “multinationals and individuals to manage and co-ordinate a welter of tax issues from the multiple jurisdictions where they operate in a single location, [providing] stability in an uncertain world” of increasing cross-border trade and investment.
“Everyone has gone a bit over the top,” James Quarmby, an international wealth structuring expert, told that leading business newspaper. “They have gone too far. The point we need to remember is just because some naughty people have used offshore for money laundering and tax evasion, it doesn’t mean that everyone is using offshore companies for money laundering and tax evasion.”
Mr Quarmby went on to call legitimate offshore financial centres such as Bermuda “the grease on the wheels in international trade”.
The onus is now very much on us and the firms that Bermuda hosts to ramp up our international lobbying and public relations efforts. We must do our very best to persuade global leaders not to also go over the top as they attempt to respond to the legitimate concerns of their electorates about the naughty individuals and corporations that have indeed exploited offshore financial centres in the name of untrammelled greed.
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