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“It’s A Sovereignty Issue” – Bermuda Pushes Back Against G-7 Minimum Corporate Tax Proposal

Courtesy of ZeroHedge View original post here.

Members of the G-7 may have agreed to a minimum global corporate tax framework that would set the minimum rate at 15%, which is higher than reputed "tax havens" like Ireland and Singapore. But the deal that President Biden has tasked Treasury Secretary Janet Yellen with striking is still facing opposition from a coterie of low-tax countries that have taken umbrage at what they see as Washington's attempt to meddle in their domestic affairs.

As dozens of OECD members hold meetings to work on a framework that would be more palatable for all the NGO's members, the FT sat down for an interview with the financial minister of Bermuda, the island nation best known as a low-tax haven for financial institutions like insurers and reinsurers.

The former banker, Curtis Dickinson, said he was loath to impose a minimum corporate tax on the island of 64K people, arguing that the small nation's popilation was still struggling to recover from both the pandemic and the 2008 financial crisis. It all feels like a violation of Bermuda's "sovereignty".

"Bermuda has a right to determine for itself what it thinks is an appropriate tax system for its jurisdiction," he said. "We have a system in place for 200 years. It’s not perfect. It does require some adjustment. But we would like to do that on our own and not have someone tell us to change our system to fit some global initiative…I would say it’s a sovereignty issue."

Dickinson added that taxing corporate profits would make Bermuda more bureaucratic and create complexity for businesss, Dickinson said, threatening the country's role as a global hub for reinsurance. Bermuda collects revenue via taxes on payrolls and property, customs duties and fees charged to international businesses.

Working class Bermudians struggle with the high cost of the island's mostly imported goods, which are also heavily taxed. A bartender who spoke to the FT reporter quipped that Bermuda's reputation as a "tax haven" is a misnomer: "It's not a tax haven, it's a tax hidden."

Still, the island's "consumption-based" system makes life easier for corporations and businesses.

"Bermuda’s current tax system…is consumption based – it is a function of seeking to be simple to administer, simple to file," he said. "That is the system we have had in place…It has not been changed to encourage people to move here. It has been what it has been. The system works for us."

"Bermuda has already been weighing whether to change up its tax regime. A review carried out by the island's government in 2018 determined that the tax code wasn't neither "fair nor equitable."

To be sure, while other island tax havens known for having more corporate P.O. boxes than people (think the Caymans), Bermuda's system of taxation has helped transform the island into a legitimate financial center, complete with the armies of actuaries who populate much of the island.

Dickinson’s argument is that it is unfair to group Bermuda with tax havens that have more corporate mailboxes than people. He said it was an “anomaly” when Google last decade shifted tens of billions of dollars through its Dutch holding company to Bermuda under an intellectual property licensing scheme called the “double Irish Dutch sandwich.” Google has scrapped the arrangement, which enabled it to delay paying US taxes.

Thanks to its tax system and streamlined regulatory regime, Dickinson said, Bermuda has become a proper financial centre. The big buildings of the leading insurers – AIG, Chubb and BF&M, among them – loom over the capital. More recent arrivals include Conduit Re, which raised $1.1bn last year through a London Stock Exchange listing, and Vantage, a reinsurer launched in 2020 with $1bn in equity capital from Carlyle, Hellman & Friedman and its management.

[...]

"We want companies here that have boots on the ground," Dickinson said.

As of now, financial services companies (mostly insurance) generate more than half of Bermuda's GDP.

That's not to say the island's leadership is completely opposed to reform. In 2018, Bermuda's own Tax Reform Commission highlighted the need for change after meeting with more than 50 stakeholder groups including local and international businesses.

A recurring theme was that Bermuda’s tax structure was "neither fair nor equitable," the report said. “There was a consensus…that Bermuda’s tax structure placed a disproportionate burden of tax on those least able to pay," Dickinson said.

But that doesn't mean that re-jiggering the island's tax policy to better suit Washington's needs will make much of a difference.


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