Bermuda Criticizes Proposed Tax Bills; Mounts Lobbying Effort
Bermuda Correspondent
U.S. Congressional proposals to force the repatriation of American companies that have moved overseas–notably to Bermuda–have been met with a mix of disappointment and outrage here in Bermuda.
Insurers and other business leaders, who normally remain silent on such matters, have joined a lobbying campaign against the proposals, which is being led by Bermuda Finance Minister Eugene Cox. Their argument, in a nutshell, is that companies that have abandoned their U.S. domicile have broken no laws, at home or overseas, and that the Congressional proposals are misinformed and could have a significant dampening effect on world trade.
On American television news programs and in repeated press interviews, Mr. Cox has described the proposals as "overzealous." Two bills are before the U.S. House Ways and Means Committee (H.R. 3857 and H.R. 3884), and one (S. 2119) has been introduced in the U.S. Senate. The bills seek to nullify redomestications by American companies outside the United States, and effectively force the companies to repatriate.
The proposals are retroactive and would nominally catch every company that has ever left the United States. Every such company would then owe back taxes on profits earned outside the United States, according to provisions in the bills.
Such proposals have been raised before, but "the one difference is that this [proposal] is very politically motivated," according to Rick Spurling, insurance partner at Appleby Spurling & Kempe, a large Bermuda law firm. "Its wrapped up in patriotism in the U.S. A significant number of professionals who have been paying close attention to this think that there is a serious risk that something is going to happen."
Joe Johnson, chairman of the Bank of Bermuda (and chairman of American International Group in Bermuda), told shareholders: "We are very aware of the intensely negative U.S. media coverage presently focused on U.S. companies that are relocating their headquarters here. We need to continue to distinguish ourselves from tax haven or money-laundering center jurisdictions."
Peter Bubenzer, senior partner at Appleby Spurling & Kempe, said he is "concerned that [the proposals are] just not well thought out. It is just a reaction, an emotive reaction–people holding swords up in Congress, that sort of thing."
Finance Minister Cox pointed out that "when it comes to certain key aspects of company incorporations and operational activities, Bermudas requirements are quite similar to those found in the United States–particularly in the State of Delaware."
"The proposals show that some people dont understand Bermudas position, or the way we operate. They seem not to be aware that relocating is perfectly legal within the laws of both the United States and Bermuda," Mr. Cox went on to say.
Relocations that comply with existing laws, regulations and international best practices "serve legitimate business purposes," the minister said. "Such a move may provide greatly improved efficiency in the arena of global competition. This is good for shareholders, good for employees, and ultimately good for the global economy."
He cited Bermuda-based insurers ACE and XL Capital as examples of "companies that have created innovative techniques in Bermuda that have been widely adopted around the world and have indeed benefited the global economy."
The minister noted that "Bermudas tax system is consumption-based, with taxes on payroll, customs duties on most imported goods, land taxes and company fees that rank among the highest in the world. We levy taxes, and have done so for more than 100 years."
The Paris-based Organization for Economic Cooperation & Development, the Financial Action Task Force on money-laundering and other international bodies have reviewed and endorsed Bermudas tax, regulatory and oversight systems, he contends.
"Bermuda adheres to the highest international standards in all those areas," Mr. Cox said. "We are sometimes confused in the minds of those who have not studied the situation with other jurisdictions that are less well regulated. What we do in Bermuda is legal and principled. We would hear very quickly from Britain were it not."
Mr. Cox pointed to the 16-year-old tax treaty with the United States and similar treaties with other jurisdictions. "People come here mainly because they want high-quality regulation, a solid infrastructure, good communications, and a place at the commercial crossroads of Europe and the United States," he said. "We have absolutely no interest in helping anyone from anywhere in the world evade taxes."
The issue has been sparked by the relocation to Bermuda of industrial companies such as Tyco, Stanley Works, Cooper Industries and Ingersoll Rand, but the insurance and reinsurance sector would not be exempt from the effects of retroactive legislation, sources here noted. In the past three years, PXRE, Everest Re and Trenwick, among others, have relocated to Bermuda.
Trenwicks chief financial officer, Alan Hunte, doubts that the company would be affected by the proposed legislation, since it moved to the island not as a redomestication, but in the process of merging with LaSalle Re Ltd. and forming one Bermuda holding company.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, April 29, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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