Global tax harmonisation is on the cards, according to a leading American economist.

Robert Hartwig, the Vice President and Chief Economist at the Insurance Information Institute, spoke to The Royal Gazette about moves in the United States for Congress to pass legislation to make Bermuda-based insurance companies pay income tax on business conducted on American soil.

He said that the world was already moving towards harmonisation and the way European Union insurance companies were taxed on their deductible reserves for their insurance business in the United States could be used as a model for offshore jurisdictions such as Bermuda.

"I think that probably what we are going to see is harmonisation in governance and oversight, including taxation,'' he said. "At least in North America and Europe this seems to be what is beginning to be the case. In Europe with the European Union it has already started.

"This means that new EU members and non-EU members are eager to adopt their policies. Because of globalisation it almost follows naturally that there will be harmonisation of governance.'' He added that in the United States Washington had allowed insurance companies from Europe to set up tax deductible reserves and this was seen as a step in the harmonisation of global finance.

Yesterday The Royal Gazette reported Mr. Hartwig as saying that other offshore financial jurisdictions as well as Bermuda would be hit if Congress passes laws on what has become known as the `Bermuda Tax' issue.

Tax harmonisation The issue has been heating up since last month the New York Times published an article stating that four American insurance companies have lobbied congress to stop Bermuda-based companies not having to pay income tax in America which they believe gives offshore companies an unfair operating advantage.

Articles about the issue have also appeared in the Washington Post and in trade journals and have been closely followed by the international business community on the Island.

The move by the American insurers has been opposed by Island insurance companies and been called `protectionism' by XL.

The US insurers -- Chubb, Hartford, Kemper and Liberty Mutual -- want Congress to pass laws which will demolish the "tax shelter in Bermuda'' and close a `tax loophole' they say will stop companies based in Bermuda but actually operating in the US to avoid paying certain taxes in America.

The companies also said tax benefits on the Island discriminated against fair competition in the United States.

The article opened: "A half-dozen American insurance companies have begun exploiting a loophole in federal tax law. By simply moving their headquarters to Bermuda or being acquired by a Bermuda insurer, they no longer have to pay income taxes.'' The article said the tax `loophole' is legal and singled out ACE and XL as "thorns in the side of American insurers''.

The US concern is that if all American property and casualty insurers followed by moving to Bermuda, they could shelter some $40 billion a year based on recent profits, avoiding $7 billion in taxes annually.

And this would mean that the US Treasury would be deprived of four cents of every dollar in income taxes now collected from corporations of all kinds and said state governments were also losing money.

BUSINESS BUC