In an interview with the Financial Times, Curtis Dickinson, Bermuda’s finance minister, said he was loath to introduce new levies as the island tax haven of around 64,000 people still struggled to recover from the Covid-19 pandemic and the 2008 financial crisis.
“Bermuda has the right to determine for itself what it thinks is an appropriate tax system for its jurisdiction,” he said.
“We have had a system in place for 200 years. It’s not perfect. It requires some adjustment. But we would like to do it ourselves and not have someone telling us to change our system to fit a global initiative. . . I would say it is a question of sovereignty.
Taxing corporate profits would make Bermuda more bureaucratic and add complexity to businesses, said Dickinson, threatening its role as a global reinsurance hub, the coverage insurance companies buy to protect against claims resulting from hurricanes, forest fires and other disasters. Bermuda currently raises revenue through payroll and property taxes, tariffs and fees charged to international companies.
“Bermuda’s current tax system. . . is consumption-based – it’s a function of trying to be simple to administer, easy to drop off, ”he said. “This is the system that we have put in place. . . It was not changed to encourage people to move here. He was what he was. The system works for us.
The pressure on tax havens increased this month when G7 countries decided to close loopholes multinationals are using to lower their tax bills, by agreeing to a minimum 15% global levy on corporate income. However, if anything will actually change, it depends on broader global negotiations, which means the implications for Bermuda remain hypothetical.
The sensitivity of the matter quickly becomes evident to a visitor to Hamilton. In a more typical day, Bermuda’s capital is packed with all the pizzazz of a place where locals brag about the large number of actuaries in the neighborhood. Start asking questions about taxes and business lips tighten even harder. Trade associations and large corporations avoid responding or refer inquiries to Dickinson.
A man of carefully chosen words, the finance minister is a former Wall Street investment banker who worked at companies such as Donaldson, Lufkin & Jenrette 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 received his undergraduate degree, and Columbia University Business School.
Dickinson’s argument is that it is unfair to lump Bermuda with tax havens that have more corporate mailboxes than people. He said it was an “anomaly” when Google transferred tens of billions of dollars through its Dutch holding company to Bermuda under an intellectual property licensing program called ” double Dutch Irish sandwich ”. Google abandoned the deal, which allowed it to delay paying US taxes.
Thanks to their tax system and streamlined regulatory regime, Dickinson said, Bermuda has become a real financial center. The tall buildings of the main insurers – AIG, Chubb and BF&M, among them – overlook the capital. The most recent arrivals include Conduit Re, which raised $ 1.1 billion last year through a listing on the London Stock Exchange, and Vantage, a reinsurer launched in 2020 with $ 1 billion in equity from Carlyle. , Hellman & Friedman and its management.
“We want companies here that have boots on the ground,” Dickinson said.
Responding to climate change gives reinsurers an extra boost. Andrew Engler, chief executive of Kettle, a start-up that uses machine learning to better understand forest fire risks, said he started his holding company in Delaware and based his operations in Bermuda to be closer to action – and a regulatory system that can move faster than the state-by-state licensing regime in the United States.
“It’s very well structured,” said Engler, a Californian who also finds the mild Bermuda weather enjoyable. “You have this Mad Island which is possibly the most important financial market for climate change that we can all imagine. “
Dickinson’s challenge is that Bermuda’s economy is “undiversified,” as he puts it. Reinsurance and other “international business activities” accounted for around a quarter of gross domestic product in 2019, according to official statistics. In contrast, recreation and hospitality in the tourist spot known for its turquoise seas produced about 4 percent.
The question for Bermuda is to what extent its reinsurers could be tax sensitive. Donald Trump’s tax changes in 2017 have already made it less attractive for U.S. insurers to purchase reinsurance in Bermuda. It remains to be seen whether the imposition of corporate taxes would outweigh the regulatory benefits of operating a reinsurance business on the island.
“It certainly won’t be a positive thing,” Brian Schneider, analyst at Fitch Ratings. But he added: “It doesn’t seem like that would be enough to destroy the whole purpose of being on the island. “
For their part, Bermudan officials do not want to be rushed. Adjusted for inflation, fourth quarter GDP fell 4% year-on-year. Dickinson said officials in Bermuda had tried to tell their counterparts in major countries that now was not the time to shake things up.
“We are obviously concerned that there is a risk of a one-size-fits-all approach that might not work for everyone,” he said. “We have had a prolonged period of weak economic growth and the idea of pushing more taxes into my mind is tantamount to slowing down the economy. “
Dickinson’s position is all the more uncomfortable given that foreigners aren’t the only ones worried about taxes in Bermuda. In 2018, the government’s own Tax Reform Commission underscored the need for change after meeting with more than 50 stakeholder groups, including local and international businesses.
“A recurring theme in almost all stakeholder groups was that Bermuda’s tax structure was neither fair nor equitable,” the report says. “There was a consensus. . . that Bermuda’s tax structure imposed a disproportionate tax burden on those least able to pay.
Despite all its appeal to international businesses, the system is tough on working-class Bermudians, who say their most important taxes come in the form of high prices for imported goods. As the conversation a few nights ago turned to wallet issues at Harry’s bar, one of Hamilton’s favorite watering holes for the actuarial team, a bartender let a visitor take part in the joke.
“It’s not a tax haven, it’s a hidden tax,” he said, serving a $ 12 glass of lager beer to his thirsty client.