Column: “Fair & Reasonable” Corporate Taxation

July 20, 2015

[Opinion column written by BPSU President Jason Hayward]

In March 2015, John Charman, the CEO and chairman of Bermuda-based Endurance Specialty Holdings Ltd, made a case in support of the introduction of corporate taxation in Bermuda. In his interview with the media he articulated some key points highlighting:

  • The levying of corporate tax would disarm international critics who regard the island as a tax haven;
  • It would not lead to a mass exodus of companies, but could potentially create a more sustainable international business environment – if accompanied by the removal of protectionist barriers; and
  • The introduction of corporate tax would allow Bermuda to strengthen its international position as a business centre.

Whether one agrees with Mr. Charman’s position or not, I believe there should certainly be some meaningful national dialogue around the topic of corporate taxation and its effects in Bermuda.

The topic is more significant now because the country is faced with growing government debt and a dwindling revenue base. The implementation of fair and reasonable corporate taxation would allow the Government to increase its revenue base, close the tax gap and assist with deficit reduction.

Unions have generally always been in support of fair and reasonable corporate taxation, recognizing the importance this stream of tax revenue plays in supporting public services.

It is evident that our current tax structure is unsustainable and inadequate to fund current public services. We cannot continue this path of reduced Government expenditure and erosion of public services. We must to take a critical look at ways to viably grow revenue by capitalizing on our current tax base.

We are  grateful for the corporate social responsibility exhibited through corporate philanthropy island wide however, this should be no substitute for paying taxes as corporate social responsibility through fair and reasonable taxation would be more beneficial to Bermuda and will go a long way to increase Government’s revenue. Corporate tax revenues can assist in providing quality education and affordable health care for all.

In addition, it would also go a long way to improve our global financial reputation as a competitive and first class business center. Generally Bermuda is known for the Bermuda Triangle or being a tax haven.

It is a plausible conception that business either come to Bermuda to avoid taxes or because they are indeed aware that there is no corporate tax. This cannot be. There is an urgent need to rebalance our economy in the interest of our island and our people and the time is now.

- Jason Hayward 

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Comments (41)

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  1. not-the-Chris-Famous-show says:

    Love it – let’s tax everyone so the bloated civil service can survive unscathed. No other ideas other than to tax ….

    • Regina says:

      Exactly. When are we just going to do what needs to be done? The Civil Service is waaay too bloated and we know this. Rip the band aid off and reduce the size. Yes it will hurt at first but it is what must be done and we all know this. We need to get right and move forward. FACT!

  2. San George says:

    Charman’s playing you Jason. If you tax on the basis of income it’s game over. They will manage net income so that you get no tax. Bermuda has an expense problem, not an income problem. Civil service is too large.

    C’mon man!

    Quo Fata Ferunt

    • Triangle Drifter says:

      Quite correct. Bermuda does not have a taxing problem. Bermuda has a spending problem begining with a massive & unproductive civil service of which Mr Hayward is head.

      He certainly will not want to see any of his empire reduced in size no matter how good it will be for the Island.

      • Impressive says:

        TD, is it really to hard for you to comment without being sarcastic or overly cynical?? I mean really?

        His Empire?? c’mon.. He is the head of a union that supports persons who provide services on behalf of the government. His union’s revenue is derived from the dues of these persons. What leader of an organization is going to want to decrease their revenue base? Anyway,

        For What its worth, I am not for the taxation that Mr. Hayward is mentioning above. I don’t believe it to be the only solution to our situation, but to put all the blame on a “bloated” civil service as you and others have described is laughable at best. In addition, “Bermuda doesn’t have an income problem, it has a expense problem” (Paraphrasing). Are you serious, so you are not for looking at ways to increase our revenue?? Cutting expenses is a means to increase net income, but when you consider inflation etc, if revenues don’t increase, you will have to make expense cuts over and over again if you stick to only cutting expenses.. Just saying.

      • Unearthed says:

        If you reduce the size of the Civil Service, where will the unemployed find work to make money and pay bills? The unemployment rate is already at 9%. Do you forget we live in a monetary system?

        Simply cutting isn’t the answer either.

        • Triangle Drifter says:

          Oh I see. The Civil Service is a form of social assistance in your world. It is where you go when you are unemployable anywhere else.

          Gotcha.

          The Civil Service does not employ productive people neither is it tailored to the size needed for Government services.

          Is that how it grew by 50% during the PLP years?

  3. watching says:

    Well said by Mr. Hayward.
    Just a small percentage of corporate taxation would do wonders for the national budget, but additionally would do wonders for the community in which these companies reside.

    • hmm says:

      And the multi-millions of charitable donations, sponsorships of events and student grants would dry up.

  4. Shaka says:

    Absolutely!

  5. If anyone would believe his following “theories”,
    e.g. “The levying of corporate tax would disarm internat-
    ional critics who regard the island as a tax haven;
    It would not lead to a mass exodus of companies, but could potentially create a more sustainable international business environment – if accompanied by the removal of protectionist barriers; and
    The introduction of corporate tax would allow Bermuda to strengthen its international position as a business centre”
    Then they also believe the sun rises in the West…His opinion is, “a roll of the dice.”

    • Chris Famous says:

      Those are Mr. Charman remarks not Mr Haywards remarks

      • I quote:”Whether one agrees with Mr. Charman’s position or not, I believe there should certainly be some meaningful national dialogue around the topic of corporate taxation and its effects in Bermuda.
        The topic is more significant now because the country is faced with growing government debt and a dwindling revenue base. The implementation of fair and reasonable corporate taxation would allow the Government to increase its revenue base, close the tax gap and assist with deficit reduction.
        Unions have generally always been in support of fair and reasonable corporate taxation, recognizing the importance this stream of tax revenue plays in supporting public services”

        • know dat says:

          What you qouted in your first comment isnt the same as what you just qouted. Those were mr Chapmans words

          • But they’d been agreed upon by B.P.S.U. President, Mr. Jason Hayward and that was/is the point.

  6. Chris Famous says:

    Jenny Messenger18 March 2015
    Endurance CEO John Charman has called for Bermuda to phase in a corporation tax in order to dispel criticism from foreign governments and regulators.

    Charman explained that he saw the introduction of the tax as a means of creating a more stable economy and dissuading global companies from relocating.

    “The reality is that Bermuda is still a ready and obvious target for the developed countries of the world to attack,” Charman said

    http://www.insuranceinsider.com/charman-proposes-bermuda-corporate-tax-report

    • Ringmaster says:

      As ever the devil is in the details. John Charman also emphasized that any corporation tax would have to be offset by a reduction in other taxes, such as payroll. He also used the words and I’m paraphrasing, “would not like the money squandered”. In other words, get the economy balanced and in a budget surplus position and use the extra taxes wisely, not to pay for out of control and bloated Government expenditures.

      • Build a Better Bermuda says:

        Don’t forget, he was also calling for lax in immigration

  7. john says:

    charmans letter was neither fair nor balanced, and the civil servants union boss is a stooge for suggesting it.

    We all know that the real reason for the out of control debt is the bloated, overpaid, underperforming civil service and the govt workforce that was more then doubled under the plp. How much you want to bet the amount of work being done didnt double?

    the solution is not to tax, and charman already made his money so its disingenuous for him to suggest it now that hes getting out. The solution is to stop spending.

  8. Curious says:

    So we should tax corporations, thus squeezing private sector workers more?

  9. BTCHECKER says:

    Your missing the main point though about Charman Jason – the removal of immigration barriers.

    i.e. Charman says we also need a change to policy so companies could hire non-Bermudians without issue.

    not just put in a corporate tax.

  10. Accurate says:

    Our IB companies have a guarantee of no corporate tax until at least 2030 I believe – proposed and passed by whom?
    And also note the part “if accompanied by the removal of protectionist barriers” to what barriers do you think he was referring? Surely not immigration barriers – wouldn’t that dilute our birthright?

  11. Build a Better Bermuda says:

    Any taxation based on income would be a headache solution, Mr. Hayward’s naïveté in the belief that it wouldn’t effect our IB community is reflecting of a labour mindset, not a business one. It isn’t that we don’t tax IB here, we do, we just don’t do it in the cumbersome way through income… and I describe it as cumbersome, because any corporate accountant will tell you, it is far more streamlines and easier to manage a government taxation through their payroll, than having to constantly recalculate tax payments to income. The payroll taxation scheme creates a constant rate that can readily be factored into their monthly cost of doing business expenses and also makes it easy for government monitoring. To move to an income based would create an additional headache on the companies to constantly determine their taxes through their income, a non-constant number and then there would be the added expense to government for monitoring as auditing compliance would require a mountain of paperwork. There would also be the matter of what income do we tax, their income off the local market, which for some doesn’t exist and for those that have a presence in our local services, is relatively small in comparison to what they pull in from other markets. Or do we just get greedy and tax on their entire corporate income, in which case, why stay here, when they can just go to one of our competitors and not have the hassle of paying taxes on monies they made elsewhere.

    • Let alone we would have to hire more civil servants to tally the new tax growing the already bloated civil service!!!!

  12. Alvin Williams says:

    Rather than bringing forward reasonable corporate taxation this government will continue to seek ways to tax those who can least afford it; the people of Bermuda, The finance minister loudly hinted what he would like to do the civil service which supports hundreds of Bermudian families and if he and his OBA government could get away with it; it would throw civil servants out of work to preserve Bermuda for whom; those who they consider have no birthright to the country where they were born? or those who were born here are only here by right of accident as oppose to those who where given Bermuda status by choice and therefore have a greater right to the country? The OBA government plan for Bermuda is to create a Bermuda without the Bermudian.

    • Bermyman says:

      The Civil service is taxing Bermuda, more than we can afford.

    • Paz says:

      What is fair and reasonable taxation?

      Remember that virtually none of these profits have been generated from insurance and reinsurance business written on Bermuda risks. The premiums are not related to Bermuda in any way. To hear politicians say that reinsurers are not paying their “fair” share of tax is ridiculous. They provide employment, pay payroll taxes, rent houses, go to restaurants, ride in taxis, and so on.

      Bermuda has provided an tax and regulatory structure for these international companies. Nothing more.

      Imposing taxation on international companies should be considered in one context only. That is to strengthen Bermuda’s position as a legitimate insurance centre. Any talk of filling the coffers of Bermuda to pay down the debt created by a spectacularly inept government or prop up an inefficient economy is a long way from the concept of fairness.

      • serengeti says:

        Exactly. If Bermuda were to attempt to tax the worldwide income of a company, it would just relocate. In addition, Premier Cox extended the tax-free guarantee to exempt companies to (I believe) 2035. So there is a legal and constitutional aspect to this, as well as a practical aspect.

  13. North Rock says:

    If the costly benefits afforded those in the Civil Service – not even remotely close to what the real world experience is – were to be reduced significantly, then we might not be seeing these attacks on this idea. The fact is that Charman did not suggest that corporate taxation ALONE would do much…freer immigration policy and reduction of civil service costs have to be part of the equation.

    On another note, this PURE AND UTTER POLITICAL BS that Alvin W and others spout which suggests that the OBA are targeting the poor Bermudians and costing them jobs despite the almost universal (that is, outside Bermuda) belief that protectionism COSTS jobs and capital outflow…this is very dangerous rhetoric and really needs to be addressed for what it is….political BS

  14. jt says:

    Our biggest problem is money out, not money in.

  15. Starting Point says:

    Do a 50/50 split – reduce the Civl service benefits and compensation equal to the amount of taxation of IB. Tie the two together so that the service makes the same sacrifices that they are asking the private sector to make.

    Have the service set the amount of savings and legislate IB to match through taxation.

    LOL – bet Mr. Hayward is not interested in that shared sacrifice.

  16. Huh says:

    This might possible work if ALL OTHER FORMS of taxation (payroll tax, stamp duties, etc.) were removed. The risk is also huge _ International business could stagnate then shrivel as our competitors slowly took our International business away from us to their TAX FREE jurisdictions.

  17. Just a matter of time says:

    Here we go attacking the civil service again. Yet the Govt manages to find $77 million for the Americas Cup who are bringing their own transportation as I understand displacing our own, continually give automatic yearly concessions to companies with barely any accountability, cut civil service pensions twice, already administered 3 early retirement program packages, took furlough money and not really say what it was spent on, give no bid airport contracts to foreign companies under dubious circumstances (remember that letterhead misrepresentation?), make deals lacking transparency and continue to hire foreign consultants and pay huge bonuses to BTA staff. And the giveaways on top of that meaning land and looser immigration policies are mind boggling. And they don’t implement or utilize austerity ideas, already given by the Union. Yet all that money doesn’t go towards nation building, education, etc. And the civil service remain the whipping post time and again.

    Let me say this. I’m sure the civil service in the main would not mind sacrificing again if they knew that the Govt spending was more evenly balanced. But when you get situations happening like I mentioned above benefiting the foreigners and not the Bdian, increasing costs with no effort in sight to decrease, it’s hard for them to say yes to another furlough day sacrifice. I know many civil servants and have conversations with them all the time. Remember you can whip the civil service and make them the scapegoat all you want. But they are one of the largest employee sectors that still stimulate the economy with their spendijng while being employed. Ask the grocery stores and restaurants and hardware stores etc etc who love the civil servants. Right now landlords simply love the stability of an employed civil servant. Civil Servants help to stabilize the economy as well. People on this board keep saying its a spending problem. I say it’s an income problem. Maybe not for the IB with that 2030 exemption rule but certainly the taxable income needs to be reviewed for all individuals residing here. The wealthy living here both local and overseas are simply not paying their fair share and a conservative Govt like the OBA would rather stick it to the middle class at all costs.

    I agree with Alvin. The ongoing flight of Bdians to the UK and elsewhere is one of the best things to have happened with this current Govt and its conservative ideologies. It probably couldn’t happen fast enough. This Govt refuses to invest in its own people. It will get worse before it gets better for the average Bdian.

    • stunned... says:

      the good thing for Bermuda is the spongers are latching on elsewhere. more funds are available that can benefit more people instead of the just the handouts.

    • Terry says:

      Then go live in the UK/USA.
      It’s all free there.
      Guess who pays for it.

      The workers.
      Shalom you a holes.

  18. Sickofantz says:

    While I believe that some kind of tiny Corporation tax of a minimal percent is actually morally right. Companies WANT to stay here because it’s a pleasant land conveniently close to the States and yet with great access to the London and Europe market. Any tax over that minimal tipping point would create a huge exodus not helped by the fact that the average international business expat has only to pick up a newspaper go online or listen to the radio to hear how unwelcome they are here.

  19. Cromwell says:

    Taxation without representation?

    If a Bermuda corporation wants to pay tax let them do it I am sure the governments Bermuda or others involved would accept their money.

    Those owners are people or shareholders and will be treated equally to Bermudians and should have the right to vote if they pay taxes. Are you ready for that?

    Do you want the corporate city state of Bermuda be integrated into our larger neighbors?

    If you want to be the same as Americans and come under the authority rules and all their regulations of the American government and the IRS tax code why don’t you go all the way and serve in the American Army to fight in the Middle East or wheresoever they want to send you.

    After they take your money they will come to take you if they think they need you.

  20. Bermuda Jake says:

    While on the surface John Charman’s suggestion may be attractive to some, it misses the point that even if instituted, the companies in place in Bermuda would not be subject to it for several economic cycles. With our debt at $2.4 billion a “solution” over a decade from now is no solution. It would also give our key competitors time to market to our industry so that those who did not favor our new status could depart in an organized fashion.

    We have a spending problem and a business concentration problem. Diversification of revenue sources is an option; milking a dry cow is not.

  21. Ringmaster says:

    @just a matter of time. Unfortunately there are many misconceptions and fallacies in your post. Civil Servants are paid by the private sector from taxes levied. Very few Civil Servants generate money. IB will not pay increased taxes just to pay Government deficits. If you want to keep the number, and cost, of the civil service as it is then each year at least $200m will need to be borrowed. Do you really think this is OK? Have you read the events in Greece recently? Their problems are similar and caused in large part by an overpaid and over benefited Government. Retire at 55 with a pension greater than that in the private sector. Sound familiar?
    The fact that Bermuda’s Government is the largest employer is not good. It is very bad. Read Larry Burchall’s well written opinions to understand.

  22. aceboy says:

    All of the exempt companies I run for clients already have an exemption from corporate income taxes until 2026. Renege on that assurance and that will be the end of Bermuda.

  23. cromwell says:

    It could be that the article is referring to the exempt foreign companies not the Bermudian companies that are protected by the 60/40 rule.

    The larger PR problem is that people think we do not pay taxes.

    We pay a lot of taxes if you include government fees and required contributions! Our pay roll tax is an income tax based on workers earnings, property tax is on ownership, HIP and the list goes on and on.

    When you drill down on who (born Bermudians or others) actually pays the tax its more likely visitors or exempt people or companies.

    How many Bermudians actually fly in and out of Bermuda and pay departure tax compared to non Bermudians?

    I think part of the confusion to outsiders is we hide our taxes (like departure tax) in the price of items to some how fool the people. It kind of looks like there are not taxes but the tax is hidden.