There really is no reason to overcomplicate the relatively simple. The European Union and the Organisation for Economic Co-operation and Development — highlighted in Will Mc Callum’s recent article entitled “Proposed new tax rules likely to hit Bermuda companies” — loom as existential threats to Bermuda’s financial wellbeing.

But this “development” may be a “cloud with a silver lining” — Bermuda and other Pillar II jurisdictions may just be able to pull their economic and financial hands, arms and feet, their bodies, slowly but ever so slowly out of the lions’ mouths if they play their collective cards right.

But why the threats in the first place?

To put it bluntly and squarely, the individual and collective member state authorities constituting the EU and OECD simply wish to have, as is the case with us here in Bermuda, more revenue derived from the operation of their nationals’ overseas companies — primarily to fund the domestic public services, investment initiatives, and infrastructural projects and programmes they promised their people they would fund when they electorally won the right to govern these various state jurisdictions.

These states will no longer tolerate the “hiving off” of billions, and even trillions, of untaxed or low-taxed dollars by base erosion profit shifting, Pillar II tax havens such as Bermuda, British Virgin Islands and the Cayman Islands, to name a few. Billions of dollars that they could use to help stem the tide of rising social unrest mainly borne out of poverty and general deprivation in their own domestic and regional jurisdictions. It’s as simple as that.

The threat is before us. We cannot sit on our laurels. We must accept who we are

So let us be clear. The global taxman has cometh. He is at our tax-haven doorstep. And, yes, he is knocking on our door, and our windows, and will not go away until he collects, or exacts, his self-prescribed fair share of tax from the international business sector. So we need a conversation. First among ourselves. That is, the Bermuda Government and the international business sector; and subsequently with the tax bogeymen, the EU and the OECD.

Ultimately, we have to strategically, and robustly, lobby and negotiate with the global taxmen a win-win position for all parties concerned. Only this time around, we have to be proactive and take the lead, the initiative, by approaching the taxmen before the taxmen approach us — as they did in 2018-19. Then, with the threat of blacklisting us if we didn’t comply, the taxmen imposed the existing “economic substance requirements” upon Pillar II jurisdictions. These jurisdictions were told in no uncertain terms, among other obligations, to anchor their headquarters and to carry out their “core income-generating activities” in and from Bermuda.

But before we set out on this jaunt, Bermuda first needs to be humble, honest, and “fess up” about who we really are because for decades we have been in deep, deep denial, duping ourselves about our real identity.

Like it or not, we are an outright, full-blown, high-flying, flaming tax haven.

Hosting international companies that avoid, and even evade, taxes is what we very conspicuously do. It is what we are known for worldwide. It is our, albeit untaxed, “stock-in-trade”. It is, and was, our raison d’être for the United Bermuda Party government, under Sir John Swan, successfully negotiating in 1985, and passing and signing in 1986, the bilateral tax treaty with the United States, which brought into existence the insurance and reinsurance industry, and international business sector we have in Bermuda today. So, let’s accept our tax-haven label and move on.

Whence we came and how we arrived at this place

So, contrary to “official” and extremely popular reports heretofore, Bermuda is not a “low tax” jurisdiction. Bermuda, plain and simple, is a “no tax” jurisdiction, particularly as far as the EU and OECD are concerned. The Bermuda Government imposes or levies zero tax on profits capital gains, investments, dividends, and revenues of any sort.

Although this knowledge was not widely known to the general public until fairly recently, successive government administrations have known, or should have known, this since 1966 — that is two years before we received our Constitutional Order 1968 and 20 years before the Swan delegation made its trek to Washington to sign the tax treaty mentioned earlier.

Under the Exempted Undertakings Tax Protection Act 1966, in particular, the Bermuda Government — UBP, One Bermuda Alliance or Progressive Labour Party, it matters not — gives and gave perennial assurances to the international business sector in Bermuda that this sector will not be taxed in the manner described above before March 31, 2035, and maybe not even then.

These are the very taxes that the EU and the OECD are interested in and focused upon taxing — not the inequitable, indirect and regressive domestic taxation system of payroll, land, property or import taxes, which are matters mostly germane to a local government administration in its quest to fund and service its annual budget initiatives.

It is therefore duplicitous in the extreme for anyone, in government or outside of government, to persuade or to tell an unwary or uninitiated public otherwise. Accordingly, it goes without saying that the impecunious position Bermuda finds itself in today cries out for an appropriate legislative, statutory or even constitutional amendment or adjustment to the last-named Act.

Will our present government step up to the plate and hit a “home run” for Bermuda on this issue? Will it take one for the team?

How we should meet and defeat the threats —Three Step Tango?

But let us resume our conversation to ameliorate, or soften even, the blow of the EU and OECD’s latest threats at our door. The EU and the OECD wish to impose an across-jurisdiction Pillar II Global Tax Regime upon Bermuda’s and its competitors’ international business sectors, particularly their insurance and reinsurance companies or industry. These two entities wish to “tax-milk the sacred cows”. What are we to do?

I propose we approach our challenges on and in the following rationale and manner. Consider this three-step approach example.

The average corporate tax rate for the EU and the OECD states, the US included, is roughly 20 per cent.

First step. Given that Ireland, an EU state, levies a 12.5 per cent corporate tax — 6.25 per cent on revenue tied to intellectual property — why doesn’t the Bermuda Government shake itself free of current “state capture” by the international business sector and persuade the Association of Bermuda Insurers and Reinsurers, and the Association of Bermuda International Companies, or the international business sector generally, to support this benchmark of 12.5 per cent as the rate of corporate tax to be initially levied on them?

The derived revenue could be collected by the Bermuda Government for onward passage to the “tax resident state tax authority” of the EU or OECD in, say, France or Germany or the USA as well, of the individual national company taxed. This way the taxed company saves, or does not have to pay, that differential or residual of 7.5 per cent on its earned revenue that an onshore or in-state 20 per cent corporate tax rate would demand of it. That’s a huge incentive and win for the international business sector.

Second step. The Bermuda Government, and its expert advisers or consultants, taking the lead with its international business sector, have to put together a feasible and workable proposal for, first, acceptance by other Pillar II governments and their international business sectors to do likewise; and when successful there, second, put together with their counterparts a further workable plan and strategy for selling this collaborative idea to the EU and OECD.

In this regard, I suggest that the Bermuda Government delegation, in its own right and later together with its international business sector representatives, persuade their Pillar II counterparts to accept that — on a sliding scale of a minimum of 1 per cent to a maximum of 5 per cent, depending on economic performance comparators, indicators and perhaps population size — the Bermuda Government and its Pillar II governmental counterparts be permitted or statutorily empowered to withhold an appropriate critical percentage of revenue before remitting the rest to the earlier-mentioned state taxing authority.

So, if for example the Bermuda Government withheld 3 per cent of the taxes collected at a rate of 12.5 per cent, then it would remit to the affected EU state the remaining 9.5 per cent. This way the Bermuda Government, its Pillar II counterparts and the respective international business sectors win, and so do the EU and OECD. This process, too, would have lessened or even removed the motivation for “jurisdictional arbitrage”.

Jurisdictions would be distinguished, and sought after, for their individual or other attributes. Companies would have less of a rationale, or incentive, to leave one jurisdiction for another because of this arrangement. Besides, the EU and OECD have global reach, and common effect, wherever these companies locate, so where are they likely to go? The silly scaremongering, frequently heard from particularly so-called professionals who should know better, simply has got to stop.

Third step. The Bermuda Government delegation, with its experts and together with its Pillar II jurisdictional authorities and their international business sector representatives, should now proceed as one, and at once, directly to the principals of the EU and the OECD negotiate and lobby for the steps discussed in steps one and two. The main argument and negotiating point in that scenario will be whether 12.5 per cent or 15 per cent or higher should be the final and operative global corporate tax rate imposed as the benchmark that the Pillar II jurisdictions should be guided by.

The win for the EU and OECD would be at a minimum that they would have removed or reduced, deleterious to them, “tax haven” behaviour, saved themselves huge administrative policing and debt-collection costs and time, and recouped or repatriated a large amount of the billions of dollars being diverted from their economies at present.

What’s in it for Mr and Mrs Joe Public?

And for those who ask, why are we doing all this? Let me reply. If we don’t attempt this, or some equivalent approach, then we are toast — sooner or later. Another reason, of course, is that a prudent and fair government just recently given a huge people’s mandate owes it to our people to take the lead in ensuring fiscal accountability and economic stability for our country.

I will illustrate in closing.

Given the average asset and revenue earnings of billions of dollars by the international business sector over the past several years — you may recall one company, Google, absent a back-office staff, was making and exporting $8 billion untaxed in 2016 from a Hamilton PO Box No 666, using Codan Trust, administered by Conyers, Dill & Pearman — I think a 3 per cent corporate tax would derive far more for Bermuda’s economy than the relatively charitable pittance apparently this sector allegedly pays annually in payroll tax. A 3 per cent tax of the international business sector is more honourable and would derive enough government revenue to totally underwrite our annual budget, pay down our national debt and repair Bermuda’s infrastructure.

The international business, I should think, would welcome being a good corporate citizen making such laudable contributions to a jurisdiction that has prepared an environment from which it can, and does, derive billions of dollars a year. It’s the least we can expect of them.

Besides, with, say, an annual $2 billion contribution from international business, we can remove or substantially reduce all burdensome local economy regressive taxes such as payroll, property, import tariffs and duties from our people. This removal or suitable reduction of import duties alone from goods and services would result in savings in our pockets and bank accounts, greater investments, a lowering of the cost-of-living index, increased purchasing power leading to increased purchases of goods and services, more imports and, therefore, higher employment of workers thus further leading to a triggering of the “multiplier effect” causing a jump-start and further boost to our economy.

After all, we are touted as a rich country. So let’s comprehensively operate as one — this time we must involve all of our Bermudian people, man-in-the-street included.

No need to import more people. They are hiding in plain sight. They are in Bermuda already

All this because we decided to appropriately tax the 13,000 international business companies in our midst and overcome life-altering threats to our way of life, locally and abroad. That’s a small price to pay, and a risk worth taking. There really is no need to import more people to grow our economy, as we hear politicians from both sides of the aisle say or intimate. There are 13, 000 “corporate persons” sitting in our midst as I write. As seen, appropriately taxing them will surely help us grow our economy, and then some.

• Phil Perinchief is a former consultant to the Head of International Treaties, Ministry of Finance, Bermuda Government