Bermuda: All Ship-shape and Bristol fashion*

Bermuda: All Ship-shape and Bristol fashion*

It has been widely reported that the Prime Minister of the UK, David Cameron, will call upon the British Overseas Territories (BOTs) which are regarded as low tax jurisdictions to “get their houses in order” (The Daily Mail, 5 June 2013) and that offshore financial centres such as Bermuda, Cayman, BVI, Jersey and Guernsey will be urged to “sign up to greater tax transparency” (Royal Gazette, 6 June 2013).

Bermuda has always defended its status as a low tax jurisdiction, and has always made it clear that it is not a tax haven, nor a place where the fruits of tax evasion can be harboured. It is relevant to recall the efforts that Bermuda has made over the last 30 years to justify its claim to being a leading offshore financial centre, not a tax haven.

• Bermuda was the first British Overseas Territory to enter into a tax treaty with the US by which tax information can be requested by and supplied to US authorities where tax fraud or tax evasion is suspected. This was introduced in 1986.
• Since then Bermuda has introduced several pieces of wide reaching legislation by which Bermuda can assist in the tracing, freezing and return of monies which are the proceeds of crime and illegal tax evasion. These include (but are not limited to) the Criminal Justice (international Co-Operation) Act 1994 and several Proceeds of Crime Acts since 1997, including the Supervision and Enforcement regime in 2008, and comprehensive modern regulation for insurance, trust and most recently corporate administration services, which is in the process of being implemented.
• Bermuda has entered into more than 40 Tax Information Exchange Agreements (TIEAs) with more than 16 of the G20 countries.
• Bermuda has indicated that it will adopt FATCA IGA model 2 (ie compulsory registration for financial institutions)

All modern western economies recognise that it is legitimate to arrange one’s personal and business affairs so as to attract the least tax properly payable. Low tax countries provide legitimate centres for recognised tax planning and tax efficiency for corporate and personal tax planning, as well as a base from which to conduct substantial global commercial operations, for which Bermuda is best known. Tax evasion in respect of taxes which ought to be paid, but which have not been paid due to a dishonest scheme to evade tax, generally occurs in respect of onshore taxes. The issue for BOTs is not tax evasion, but to organise themselves appropriately to protect against abuse by onshore tax evaders. Bermuda has strict Anti Money Laundering laws and to date has had a very good track record in its tax and AML history over the last 30 years.

Low tax centres provide substantial advantages for onshore business and consumer pricing of products and services, eg insurance premiums for retail insurance customers are much lower as a direct result of lower reinsurance costs for onshore carriers. Bermuda contributes to onshore economies in jobs and exports: in 2010 an estimated 300,000 US jobs were directly or indirectly connected to Bermuda’s financial centre; direct exports from US to Bermuda were worth $10 billion and imports from Bermuda to US were worth $24 billion (according to the Economic Impact Study published in 2011 by the Albright Stonebridge Group). Bermuda and the EU had two way trade in insurance and financial services of $25 billion and two way investment levels of about $40 billion between Bermuda and the UK (according to the 2012 Economic Impact Study published by Transnational Analytics).

Bermuda is a long way from needing to get its “house in order”. We may be 700 miles at sea but Bermuda regulation is efficient, “ship-shape and Bristol fashion,” that is, particularly seaworthy and capable of surviving the long haul.

Onshore needs offshore to continue to be successful. Demonising offshore financial centres simply as “tax havens” is not only bad business, but bad economics for onshore economies.

*In First-Class Order