European Union Allies Itself With Bermuda
[Written by Larry Burchall]
As reported in “The Hill”, on April 30, 2010, nine CEO’s of major US based Insurance providers wrote to the US Congress to express support for the Neal Bill and to urge Congress to take action to stop what they described as tax avoidance by foreign-owned insurance companies who strip their earnings into overseas tax havens.
But the European Union, with 500,000,000 consumers, disagrees.
Today, the Financial Times [FT] reports that Angelos Pangratis, acting head of the EU delegation to the US, wrote to Tim Geithner, Treasury secretary, saying that European policymakers believed the tax proposals were at odds with a level-playing field for domestic and foreign insurers and reinsurers in the US.
Mr Pangratis wrote:
This penal tax regime would only apply to foreign-owned insurers; thus it would not result in protecting the US tax base but in creating a disadvantageous tax environment for foreign insurance providers.
The FT reported that the proposal in the US budget would disallow US tax deductions on reinsurance bought from affiliate companies based outside the US. The proposal is designed to cut out tax advantages enjoyed by insurers and reinsurers based in low-tax environments, such as Bermuda, where many US and international insurance groups are based, and Switzerland, Ireland and the Netherlands in Europe. The proposal echoes closely a Congressional bill re-introduced by Richard Neal in August last year.
As reported in “The Hill”, and responding to the Congressional push by the nine US CEO’s; Brad Kading, CEO of the large Bermuda-based insurer XL Capital Ltd and head of Bermuda’s Association of Bermuda Insurers and Re-Insurers [ABIC], admitted in April that the profits of ABIC’s member companies that are derived from the tax advantage are “going back to shareholders”, not consumers.
However the European perspective, as written by Mr Pangratis and reported by the Financial Times, is that “the current proposal would clearly include reinsurance contracts with companies in Europe, where the average tax burden was 25 per cent.”
He said this would lead to higher costs for European insurers, who play a significant role in US insurance markets, and could lead to higher insurance premiums for US consumers, the withdrawal of foreign companies and job losses.
Significantly and adding a new dimension, Mr Pangratis went on:
We have doubts whether the primary aim of this provision is tax evasion. Instead, the main aim of the proposal appears to protect the US insurance and reinsurance industry through a discriminatory treatment of foreign insurers and reinsurers.
Mr Pangratis went on to say that this would contravene the G20 commitment to fight protectionism, and would violate US commitments that insurers and reinsurers of any other WTO member must be treated no less favourably than US suppliers. This commitment is made in the G20’s General Agreement on Trade in Services [GATS].
Because Bermuda is a Dependent Territory of the UK, and because the UK is a member of the WTO, part of the G20, and a signatory to GATS, Bermuda falls within the ambit of that global agreement.
Brad Kading and ABIC, along with BIBA [now Business Bermuda] have already made strong representations to the US Congress. This just announced major pushback by the European Union with its 500,000,000 consumers adds a big punch to Bermuda’s continuing efforts.
This is clearly a positive stance by EU to Bermuda’s re/insurance market. However it is just one snippet of information from a sea of information available in the world media which reflects on the future of Bermuda.
The Bermuda people deserve to know that the preponderance of legislation against the use of offshore financial centres is overwhelming!
The EU’s latest threat is the EU Hedge Fund Passport legislation. This legislation will make it much more onerous for hedge funds domiciled outside the EU, including US and UK. These countries are lobbying vigourously against this legislation.
FATCA is a piece of legislation that has passed under the radar in Bermuda media, but has a heavy price to many, many, businesses domiciled in Bermuda.
Only last week another bill was introduced by representative Doggett in the House on the Hill. This affects most of the companies that use Bermuda as a domicile but have no actual presence in Bermuda. Note, the mebership of ABIC (exempt companies with actual presence in Bermuda) numbers around 400. Where does that leave the other 13,400 companies?
Norway has passed effective regulation similar to this bill and has targeted some major companies registered in Bermuda already.
India has successfully won its case against a Bermudian company for tax evasion in line with their enhanced efforts to raise more taxes.
ChristiaAid has put out a scathing report of how offshore finance centres are used to deviate oil revenues from developing countries like Nigeria, Congo and Ghana.
Russia continues to go after the assets that were smuggled out of the country by “oligarchs” to places like Bermuda. Remember IPOC? No, because the story has not been followed up and reported by the Bermudian media.
Wake Up Bermuda!