US tax policy a ‘clear and present danger’ – The Royal Gazette | Bermuda News, Business, Sports, Events, & Community

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US tax policy a ‘clear and present danger’

Donald Trump's plans to cut American tax rates is “a very serious risk” to Bermuda's economy, finance minister Bob Richards warned yesterday.

Mr Richards said: “The threat level to our international model has never been as high or as imminent as it is now.

“These threats literally pose a clear and present danger to Bermuda's international business sector, the thousands of Bermudians who depend on that sector for their livelihoods and the economy in general.

“The situation calls for careful, calculated and targeted action by Bermuda, particularly from the Cabinet Office and Ministry of Finance in close collaboration with our international business stakeholders.

“The Government will remain vigilant and prepared to defend against these threats.”

Mr Richards added: “Tax reform in the US context will definitely mean corporate tax cuts.

“The scenario where US corporate taxes are cut to such an extent that there will no longer be a comparative advantage to use the facilities that Bermuda offers is now possible.”

And he added that the island's insurance and reinsurance business could be damaged as well.

Mr Richards said: “There is also the possibility that the details of tax reform could either intentionally or unintentionally target our reinsurance and insurance business and damage Bermuda's comparative advantage, resulting in the redomiciling of companies to the States with the corresponding loss of Bermuda jobs and income.”

Mr Richards was speaking as he delivered his Budget speech in the House of Assembly.

He told MPs: “We do not know the details of US tax reform yet, perhaps nobody does at this time.

“However, the risks to our international business model are very significant and we must be extra alert and vigilant.”

Mr Richards said the Republican party controlled both the House of Representatives and the Senate, as well as the White House, which would allow the US Government to push through major shifts in policy.

“The idea of a cross-border tax is particularly worrying to our international business sector.

“If taxes were placed on cash flows from reinsurance claims, it could be catastrophic for Bermuda-based reinsurance companies.”

Mr Richards quoted an article in London's Financial Times by Larry Summers, a former US Federal Reserve governor and economist, which advocated cutting US tax rates, axing tax shelters and “cracking down on tax havens”.

Mr Richards said: “It is noteworthy that Dr Summers is American, not British, and although writing about the US economy, one wonders whether he was referring to cracking down on his own domestic tax havens like Delaware, Nevada or Wyoming, or whether he was referring solely to the bane of the global economy — these pesky ‘dots on the map'.”

And he fired a warning shot across the bow of the UK Government after some British MPs tabled an amendment to the UK Criminal Finances Bill that would allow an Order in Council to be used to force Overseas Territories to adopt public beneficial ownership registers for companies incorporated in them. Mr Richards said: “This initiative is an affront to Bermuda's constitutional rights enshrined in the Bermuda constitutional order and if it gathers favour in London, we will fight it with all the means at our disposal.

“Constitution aside, an Order in Council by a large country like the UK, in whose parliament Bermuda has no representation, against the interests of a small one like Bermuda, whose laws are the creation of a locally, democratically elected legislature, in this day and age would be an anachronistic act, typical of a time long past and diametrically opposed to contemporary internationally accepted principles.

“Such an action would place Bermuda at a distinct competitive disadvantage to other financial centres.”

One senior international business figure, who asked not to be named, backed Mr Richards's view that the island faced unprecedented threats.

He said: “He has correctly described the risks — there are risks on both sides of the Atlantic. Both the EU and the G20 are creating lists of jurisdictions that are viewed as non-cooperative in meeting international tax standards.”

But the senior figure added that Bermuda had several new Bills being prepared to keep the island in line with overseas standards.

And he said: “The US only does tax reform every 30 years or so, so this whole year will be following the bouncing ball between the House, the Senate and Trump versions of tax reform.

“The tax reform threat is a threat in different ways — the border adjustment tax could affect insurance and reinsurance and be quite damaging to cross-border trade between the US and Bermuda.

“I'm not saying these things single Bermuda out for punishment, but these are risks that could emerge.”

And John Wight, president of the Bermuda Chamber of Commerce, said: “The ministry had a very difficult job in addressing the many economic challenges facing Bermuda. “There is no doubt from economic data gathered over the past year that Bermuda's economy is moving in the right direction.

“Tourist arrivals are up, retail sales are up and virtually every index supports a growing economy, albeit Bermuda needs more people to share in this growth.

“If Bermuda's finances were strong, and the international business world was stable, this would be a much easier budget to prepare.

“Regrettably, that is not the case. Bermuda is facing unprecedented risks, principally from beyond our shores.

“Potential tax reforms from the new US president and his administration, and Brexit are the two most pressing issues among many.

“We do not yet know the extent of the associated risks, but we know that their consequences are concerning.”

US President Donald Trump (Photograph by Alex Brandon/AP)

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Published February 25, 2017 at 8:00 am (Updated February 25, 2017 at 1:50 am)

US tax policy a ‘clear and present danger’

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