As a small island nation, with a vibrant insurance sector and relatively low tax rates, Bermuda can be a target for political leaders and pundits in the United States. But history shows that our nations are natural friends, allies and economic partners.
Seventy years ago, fighting against Imperial Japan and Nazi Germany, the United States searched for allies, large and small.
During the Cold War and the current war on terror, Bermuda provided the US with bases for Air Force refueling and aircraft searching for enemy submarines in the Atlantic. Bermudans served in the British Armed Forces, fighting alongside American troops. And, before President Franklin D. Roosevelt became ill, he and Prime Minister Winston Churchill were to have met in Bermuda in April 1944 to plan allied strategy.
Just as Bermuda and the U.S. have stood together in wartime, the two share common traditions, including democratic values, free enterprise and the rule of law. As the oldest self-governing territory in the British Commonwealth, Bermuda has had its own parliament since 1620. For almost half a century, the island nation has had an elected government that sets economic policies and provides public services, with a two-party system and leaders who mirror its multiracial population.
On the economic front, the U.S. provides more than 75 percent of all imports into Bermuda. Bermuda-based reinsurance companies provide about two-thirds of the backup coverage for home insurance in the U.S., especially in disaster-prone areas, such as Florida with its history of hurricanes and the San Francisco Bay Area with its earthquakes.
Over the last 12 years alone, Bermuda’s insurers and reinsurers have contributed an estimated $35 billion in catastrophe claims payments to their U.S. clients. These payments have included $2.5 billion after the destruction of the World Trade Center, $17 billion for Hurricane Katrina, $2 billion following tornado outbreaks from 2010 to 2012 and an estimated $3 billion in reported losses by Bermuda’s reinsurers for Hurricane Sandy.
Unlike the “tax havens” that have attracted attention recently, Bermuda’s tax system pays for public services that attract and retain a highly skilled workforce, successful companies and sophisticated tourists. Bermuda collects taxes equivalent to 16 percent of its GDP, mostly through taxes on payroll and imports. Far from evading taxes, Bermuda-based international insurance and reinsurance companies generate more than 70 percent of the island’s total tax revenues. If you are locating a shell corporation to shelter profits, you are a hundred times more likely to do this in the British Virgin Islands than in Bermuda.
For almost 25 years, Bermuda has had a tax treaty with the US, requiring Bermuda’s government to share tax information about the assets and investments of American citizens and corporations in Bermuda. This information-sharing helps to identify the true ownership of businesses so that foreign governments can collect the taxes that are due.
While visiting Bermuda in 2010, U.S. Attorney General Eric HolderEric H. HolderHouse Dem calls out Uber over sexism allegations Ellison holds edge in DNC race survey Democrats face fierce urgency of 2018 MORE flatly denied that Bermuda is a “tax haven.” Further promoting Bermuda’s transparency on tax matters, representatives of the governments of the US and Bermuda signed an agreement last December to uphold and enforce the provisions of the US Foreign Tax Compliance Act.
Striving to ensure maximum financial transparency and security, Bermuda established its first Tax Information Exchange Agreement (TIEA) with the US nearly three decades ago in 1986. Bermuda has taken the lead in transparency and cooperation on international taxation matters with 80 TIEAs in place, including 41 bilateral agreements and Organization for Economic Cooperation and Development (OECD) Multilateral Convention on Mutual Assistance in Tax Matters. In fact, in 2010, the OECD included Bermuda on its “white list” of countries that are fully cooperative on tax policies and other international tax policies.
Meanwhile, the Bermuda Monetary Authority makes sure that Bermuda’s regulatory framework is consistent with international standards and appropriate for its predominantly wholesale insurance market. With its risk-based regulatory approach, progressively rigorous requirements are placed on insurers and reinsurers, based upon the nature, scale and complexity of their business. This approach has been endorsed by the international community, including the International Monetary Fund.
On the urgent international priority of combatting money laundering and terrorist financing, the Bermuda Monetary Authority has the capacity to impose substantial penalties on financial institutions that fail to comply with the island’s laws and with international standards.
The next time American politicians and the news media lump Bermuda together with “tax havens,” remember the facts: Bermuda is committed to international cooperation on matters from taxation and regulation to hemispheric defense. An alliance forged in the flames of international conflict should not be sacrificed on the altar of domestic political expediency.
Packwood is the Overseas Representative for the Government of Bermuda, responsible for the Americas and Asia. She also directs Bermuda’s Washington, DC office.