End of tax havens on steroids
The European Parliament, by a 587-50 vote, passed a resolution two weeks ago calling for the automatic inclusion on the blacklist of countries that use a 0 per cent tax regime. They undoubtedly have British territories such as Bermuda and Cayman Islands in their sights along with Crown dependencies such as Guernsey. It will be up to the European Union’s Economic and Financial Affairs Council, comprising the 27 member states, to ratify the decision.
I cannot tell you the number of times over the past two years in the House of Assembly since Britain voted to leave the European Union that I said that action will come back to haunt us here in Bermuda. Why? Because it was Britain that for decades that ran interference for us and themselves when its EU partners sought to rein in the types of tax-avoidance schemes that were such a part of what the City of London and its Overseas Territories were infamously known for. Now that they have come down with a globally accepted definition of a tax haven, which is a territory that has an effective 0 per cent tax rate, Bermuda can no longer escape the label of being one. Not with a straight face, that is. And certainly not as long as it has the aforementioned 0 per cent tax rate. The Europeans have the hammer and tongs, and are prepared to use them.
Thus the discussions of late around tax restructuring — to the finance minister, the Premier and many within the financial-services sector locally, welcome to the party.
In a recent op-ed on the long overdue need to restructure our tax system, I used as my catalyst the comments found in a recent interview of former XL chief executive Brian O’Hara by journalist Jonathan Kent. That interview included his views on the need for us to move in the direction of adopting a corporate income tax regime for Bermuda. Of course, O’Hara’s motives for advocating such a change — as he stated with former finance minister Bob Richards some time back — reflect a growing sentiment that I share that as long as Bermuda and others are now irredeemably viewed as tax havens notwithstanding our protestations, the only realistic way to combat that red letter of growing reputational harm would be to adopt a modest corporate income tax.
O’Hara touted 4 per cent tax as part of his consideration of the issue and the elimination of payroll tax as we know it. In my response in my op-ed, I countered with a prospective corporate rate somewhere north of his proposal, of between 5 per cent and 7 per cent.
These views are not new. Persons such as former attorney-general Philip Perinchief and the Bermuda Industrial Union’s Chris Furbert have also made the same call publicly of late — in the case of Perinchief, for decades.
We also know that while we always talk about independence for Bermuda as being a long sought-after Progressive Labour Party goal that goes back to its founding, the founders of the PLP in the 1960s also articulated and were committed to economic justice in the form of support for a more progressive and thus equitable system of taxation. So the issue of adopting a corporate and even a personal income tax regime by way of public policy has been a longstanding goal of the party virtually from its inception. I doubt that most members under 50 years of age would be aware of that, including some who sit today on the government benches and Cabinet.
As noted, I believe that while our motivations may indeed be different — those articulated by O’Hara and some in international business in contrast to my own which are centred around the need for equity — I also believe that there is an emerging alignment of interests around this issue. In other words, we can accomplish both objectives. Addressing the reputational damage as a result, as I stated of the way in which the tax-haven label has been concretised and weaponised against us, along with the need to implement at a critical time for our country a more equitable and progressive tax system that also allows the Government to pull itself back from the fiscal cliff it is on at present in terms of growing deficits and unrelenting levels of debt. Clearly, there is a mutual interest on both sides in getting this done — and now.
But my real reason for coming back to this issue was that I entertained a call from someone who read my piece and who has had extensive experience in the global insurance industry based in Bermuda.
His concern was not that he was opposed to a modest corporate tax rate for the reason stated, but rather it was because he did not feel comfortable with my suggestion as per my prospective fantasy deal to rescind the Exempt Undertakings Act for the sector that ensures that they will have no corporate income taxes levied by the Government. The current term ends in 2035 after being extended by former premier Paula Cox’s government. He would rather it be retained and amended so that it provide some security that the prospective tax rate would not be raised for the sector beyond that which would be agreed upon by the parties. He is not confident that the Government would not, over the next 14 years for example, increase the proposed corporate tax rate from, say, 5.5 per cent in 2022 to levels that they would find unacceptable or which would harm our global competitiveness.
I get that, but I am concerned when business tycoons the likes of which we have in Bermuda and who preside over companies that do no business in Bermuda should have a veto over the level of taxation of a quasi-sovereign, elected government . Should that sector be consulted? Yes. But a veto just does not sit well with me, as it evokes in the most crude way what is called government capture. It also has a vaguely neo-feudal, non-democratic feel to it that I am not comfortable with. I mean, we in Bermuda know what an oligarchy looks and smells like, as it existed here up until the early 1970s essentially. However, I do fundamentally understand how valuable that sector is to our economy. Let us not let the perfect be the enemy of the good in this regard.
So I am prepared — as I know he will be reading this — to propose the following: I would recommend that we agree to retain and not rescind the Act in question, but rather amend it. That amendment would principally mandate a mutually agreed tax rate — somewhere between 5 per cent and 7 per cent — that would be locked in while leaving other forms of corporate income alone. But only to the year 2030 as opposed to the existing 2035 term as provided for under law. After this, the law would expire and there would be no further extensions as per agreement beyond 2030.
Nothing lasts for ever and the four decades or more era that saw the growth of these tax havens on steroids — which were facilitated and enabled in part by Washington and the City of London which remains the uber-tax haven — is coming to an end. We are a mature jurisdiction now with world-beating global companies domiciled here. They claim they no longer need that crutch of a 0 per cent rate, as it is Bermuda’s innovative regulatory infrastructure that is our real advantage. And now they have a chance to prove it.
• Rolfe Commissiong was the Progressive Labour Party MP for Pembroke South East (Constituency 21) between December 2012 and August 2020, and the former chairman of the joint select committee considering the establishment of a living wage