‘It’s a Sovereignty Affair’: Bermuda Explores a Global Tax Deal

Bermuda’s political and business elite is responding to pressure from the G7 for a minimum corporate income tax as if the Atlantic hurricane was approaching. Officials are looking to weather the storm — and keep the 19th-century revenue system intact without compromising the company’s profits.

In an interview with the Financial Times, Curtis DickinsonBermuda’s finance minister said he hates the introduction of new taxes while the island’s tax haven of about 64,000 people was still struggling to recover from the Covid-19 pandemic and 2008 financial crisis.

“Bermuda has the right to determine for itself what it believes is an appropriate tax system for its jurisdiction,” he said.

“We have a system in place for 200 years. It’s not perfect. It doesn’t require some modification. But we’d like to do it on our own and not have someone tell us to change our system to fit some global initiative…I would say it’s an issue of sovereignty.”

Bermuda Finance Minister Curtis Dickinson is a former Wall Street investment banker © Akil Simmons/FT

Taxing corporate profits, Dickinson said, would make Bermuda more bureaucratic and further complicate business, threatening its role as a global hub for reinsurance, the cover insurance companies buy to protect themselves from claims arising from hurricanes, wildfires and other disasters. Bermuda is currently raising revenue through payroll and property taxes, customs duties and fees levied on international corporations.

Bermuda’s current tax system. . . Dependent on consumption – it is a function of striving to be easy to manage and easy to apply.” “This is the system we have. . . It has not been changed to encourage people to move here. It was what it was. The system works for us.”

The pressure on tax havens increased this month when the Group of Seven nations moved to plug loopholes used by multinational companies to cut their tax bills, agreeing to 15% minimum global taxضريبة on corporate income. However, whether anything will actually change depends on a larger scale global negotiations – means that the implications for Bermuda remain hypothetical.

The sensitivity of the issue soon becomes clear to the visitor in Hamilton. In the more off-beat times, Bermuda’s capital packs all the excitement in a place where locals brag about the large number of actuaries in the neighborhood. Start by asking questions about taxes, and press the companies’ lips together more tightly. Trade associations and leading companies alike avoid answering or referring inquiries to Dickinson.

Restaurant in Hamilton. The mild weather in Bermuda makes for a pleasant lifestyle © Nicola Muirhead / Bloomberg

BF&M and Aon headquarters. Insurance accounted for about a quarter of GDP in 2019, © Akil Simmons / FT

With carefully chosen words, the finance minister was a former Wall Street investment banker who worked at companies including Donaldson, Lufkin, Generet and Credit Suisse First Boston before entering government. He was educated at Morehouse College in Atlanta, the historically black institution where Martin Luther King Jr. earned his undergraduate degree, and Columbia University Business School.

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, in the past decade, Google transferred tens of billions of dollars through its Dutch holding company to Bermuda under an intellectual property licensing scheme called “Double Irish Dutch Sandwich. Google has canceled the arrangement that enabled it to delay paying US taxes.

Thanks to its simplified tax system and regulatory system, Bermuda has become a convenient financial center, Dickinson said. The large buildings of the leading insurers – AIG, Chubb and BF&M, among them – loom over the capital. Include newer arrivals Re . channel, which raised $1.1 billion last year by listing it on the London Stock Exchange, and Favor, a reinsurance company launched in 2020 with $1 billion in capital from Carlyle, Hillman and Friedman and its management.

The Chubb Building in Central Hamilton | © Akil Simmons / FT

Renaissance Re is based in the capital | © Akil Simmons / FT

“We want companies here that have shoes on the ground,” Dickinson said.

Responding to climate change provides an additional boost to reinsurers. Andrew Engler, CEO of boiler, a startup that uses machine learning to better understand wildfire risks, said he set up his holding company in Delaware and grounded its operations in Bermuda to be closer to a procedure — and to a regulatory system that can act more quickly than a state — a state-by-state licensing system in the United States.

“It’s very well organized,” said Engler, a California native who also sees the mild weather in Bermuda as pleasant. “You have this crazy island that is probably the most important climate change financial market we can all imagine.”

The challenge for Dickinson is that Bermuda’s economy is “undiversified,” as he puts it. Reinsurance and other “international business activities” accounted for about a quarter of GDP in 2019, official statistics turns out. By contrast, leisure and hospitality in the tourist area known for its turquoise seas produced about 4 percent.

2019 Bermuda GDP bubble chart by industry.  Financial activities constitute a large proportion of the country's GDP

The question for Bermuda is to what extent reinsurance companies may be tax sensitive. Donald Trump’s tax changes in 2017 made it more attractive for US insurers to buy reinsurance from Bermuda. It remains to be seen whether corporate taxation will override the regulatory advantages of operating a reinsurance business on the island.

“It certainly wouldn’t be a positive thing,” said Brian Schneider, an analyst at Fitch Ratings. But he added, “It doesn’t look like it would be enough to destroy the whole purpose of being on the island.”

For their part, Bermudian officials do not want to rush. adjustment for inflation, GDP for the fourth quarter It’s down 4 percent year over year. Dickinson said that Bermudian officials were trying to tell their counterparts in the major countries that now was not the time to turn things around.

“Obviously we are concerned that there is a risk that a one-size-fits-all approach may not work for everyone,” he said. “We’ve had a sustained period of low economic growth and the idea of ​​introducing more taxes in my mind equals pressure on the economy.”

Insurance companies like AIG play an important role in Bermuda’s economy © Akil Simmons / FT

Front Street in Hamilton. The tax system is difficult for working-class Bermudians. © Nicola Muirhead / Bloomberg

Dickinson’s position is uncomfortable because it is not only foreigners who have concerns about taxes in Bermuda. In 2018, the property of the government tax reform commission He highlighted the need for change after meeting with over 50 stakeholder groups including local and international businesses.

“The recurring theme across almost all stakeholder groups has been that Bermuda’s tax structure has been neither fair nor equitable,” the report said. There was consensus. . . that Bermuda’s tax structure imposed a disproportionate burden of tax on those least able to pay.”

Although attractive to international companies, the system is hard on working-class Bermudians, who say their most important tax comes in the form of higher prices for imported goods. As the conversation a few nights ago turned into pocket issues in Harry’s tape, Hamilton’s watering hole favorite of the actuary group, bartender let the visitor get in on the joke.

“It’s not a tax haven, it’s a tax hidden,” he said, serving a $12 glass of beer to his thirsty customer.

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