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Tax havens – again!

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Bob Richards was a Member of Parliament from 2007 to 2019 and Minister of Finance from 2012 to 2017

Even though I have migrated from being a starting member of the first team, to sitting in the stands, I am still a passionate supporter of Team Bermuda. But it seems, in recent times, that Team Bermuda just can’t catch a break.

First, we had the global financial crisis that hit us harder than almost anybody else. Second, we witnessed the plummet of interest rates, hobbling the profitability of our insurance sector. Third, we had the Trump era where massive corporate tax cuts almost ruined our fiscal comparative advantage with the US.

Now, when it looks like that situation is about to be reversed, we are called out by President Joe Biden, in an address viewed by millions, as one of only three countries that are enabling the top 55 corporations in America to legally pay zero federal income tax, thereby robbing his treasury of funding.

Having been explainer/defender-in-chief of Bermuda’s economic model around the world for almost five years, I can tell readers that our story is totally counterintuitive to a politician in one of the world’s capitals, or a US suburban housewife, or a European factory worker.

In their minds, in order for a tiny community like us to be actual impact players in the grand scheme of global economics, we “must be doing something either illegal, unethical, underhanded or morally wrong. Must be!”

As Biden simply said:, “It’s not right!”

But we are, indeed, impact players in the global economy. Early on in my tenure at the Ministry of Finance, I retained the services of Charles Ludolph, of Transnational Analytics, whose specialty is ferreting out the pertinent data regarding Bermuda’s global economic impact. The numbers are astounding! In his latest report, covering 2010 to 2017, dated January 2019, he states:

• Bermuda’s economy supports almost 574,000 jobs in world markets through trade, the foreign direct investment of its multinationals, and its portfolio investment capacity — mostly in the United States, Britain, Germany, France, and Ireland, but also Asia, eg, Singapore, Hong Kong and South Korea.

• After the 2008 global financial crisis, Bermuda’s economy evolved. While United States trade and investment increased, US significance to Bermuda decreased relative to other global markets — from 60 per cent of Bermuda business in 2007 to 50 per cent in 2017. The United States remains Bermuda’s largest economic partner, but Europe and Asia increased their economic relations with Bermuda absolutely and relatively.

• In the recent four years, large insurance companies and government agencies around the world raised more than $50 billion off their shores in Bermuda to cover catastrophic loss risks. Twenty billion of that was raised by offshore investment funds using the Bermuda Stock Exchange. Twenty billion dollars worth of Bermudian catastrophe bonds and insurance-linked security vehicles cover US hurricane risks, and $5 billion cover US wildfire risks.

• Eight-two per cent of the $621 billion in global portfolio investment assets that Bermuda holds was invested by Bermuda’s insurance sector compared with 57 per cent in 2004.

•Between 2013 and 2017, US and European Union aircraft leasing companies relied on Bermuda’s financial trust companies (SPVs) to purchase more than 375 aircraft for more than $8 billion.

Dr Ludolph explains that the bulk of our business with South Korea is the buying, selling and financing of ships.

These are just a small example of the data available that indicate that we are impact players on the world economic stage and the impact is well documented. No one is hiding, no one is covering it up. Dr Ludolph accesses public data. Bermuda is providing an important, transparent service for global corporations. Our legal foundation, coupled with an independent judiciary, solid and internationally regarded regulatory institutions such as the Bermuda Monetary Authority and Bermuda Stock Exchange provide something that multinational corporations crave — a tangible risk-reduction option in a global market full of risks.

The problem with all this is that large countries and bureaucracies, like the EU, covet our business. Their leaders understand it, but, because of our size, they regard it as illegitimate — by definition. They don’t want to be bothered by facts. They just want the business back, period. They may appear unreasonable, but the elephant can get away with being unreasonable with the mouse.

In the face of all this, what do we do? Well, we’ve done a lot already. In fact, Bermuda and other offshore centres have engaged in a campaign of appeasement for the past two decades. We have signed every treaty, passed every law, enacted every regulation, built every financial data sharing facility (at taxpayers’ expense) they have demanded of us. They’re still not satisfied. Geopolitical history has shown that appeasement only makes the aggressor bolder. The “Special Relationship” between the elephant and the mouse, as exemplified by Ronald Reagan and Sir John Swan, is now a mere footnote in history.

One of the issues hobbling our attempts to stave off destruction is that there are subsectors of our international business offerings that demonstrably benefit the global economy but there are others that do not. Bermuda has done little to cull the areas that do not, so when we tout our insurance sector, our detractors will respond, “What about Google?”

I know Google is gone now, but it is good example. Google was using the so-called Double Irish Sandwich structure to avoid taxes — legally, I might add. Google saved billions in taxes but Bermuda absorbed very significant reputational damage by enabling it. Was that damage worth it? Government revenues derived from participating in that Double Irish Sandwich were fees of $1,100.00 per year. That’s right, $1,100.00 pa.

Their lawyers here derived fees in the region of $70,000 pa. If ever there was an asymmetrical arrangement, that was it. In my last Budget Statement, I raised their fees to $25,000 pa — still peanuts to that company, but a message that we didn’t want that kind of business here any longer.

Bermuda has got to take care of its reputation better than it has. We not only have to accentuate the positive, we have to eliminate the negative.

We took a big hit from Biden the other evening. Europe and the Organisation for Economic Co-operation and Development and the Financial Action Task Force, which are both dominated by the Europeans, have been on our case for more than a decade.

The global political environment for Bermuda has just become a lot more hostile. We must work together to survive.

Bob Richards was a Member of Parliament from 2007 to 2019 and Minister of Finance from 2012 to 2017

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Published May 06, 2021 at 8:44 am (Updated May 06, 2021 at 8:44 am)

Tax havens – again!

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