The outside forces squeezing our economy

“Give me peace of mind and trust

Don’t forget the rest of us

Give me strength; reserve control

Give me heart and give me soul

Wounds that heal and cracks that fix

Tell me all your politik

And open up your eyes”

— Coldplay

Part I of II

Growing up in the 1970s I often heard the folks around me refer to politics as a “Pile-a-tricks.” I often wondered exactly what did they mean. I wonder no more.

Bermuda has been told that Term Limits were the main reason for the demise of the Bermudian economy. Basically it was all the fault of the PLP. Well, some may have bought into that fallacy and either voted against the PLP or just did not vote at all. At any stretch, the OBA got what they wanted — a confused electorate.

Today I want to bring some clarity. As a Mechanic, I don’t merely say “okay, we have a problem” and throw my hands up in the air. I will get my hands dirty to get to the root of the problem. Recently, I have gotten my hands dirty to find out what is going on with the  industry which drives our economy.

While the insurance sector has grown worldwide since the credit crunch in 2007/8, it has gotten smaller in Bermuda and may continue to do so. Here is a list of challenges the OBA conveniently skipped telling the public about:

Repatriation

Global multi-country groups such as the OECD and the G20 are pushing for strong clamp downs on tax avoidance by major global companies. Recently,  UK Prime Minister David Cameron made a statement along the lines of Google’s $6m tax avoidance by using Bermuda as a tax haven as “unacceptable “and that he would be going to the G20 conference to push for further tax haven clamp downs”.

This type of news has led to many major global companies coming under fire for not showing good corporate citizenship in the countries in which they are actively doing business. So there is now a trend for global companies to show greater responsibility and to be seen to be actively avoiding any contribution to another global financial meltdown. As such, major companies are “repatriating” from Bermuda to their home countries, to maintain a good public view of their companies.

In other words they do not want to be seen as “the bad guys.” As people may choose not to buy their products or shares.

FATCA

One already anticipated tax haven clamp down, the U.S. Foreign Account Tax Compliance Act (FATCA), introduced to target U.S. citizens, who evade paying U.S. taxes by hiding assets in undisclosed foreign bank accounts, was signed into law by President Obama in 2010.

As of January 1, 2014, FATCA will require foreign financial institutions such as banks, stock brokers, hedge funds, pension funds, insurance companies and trusts to provide reports to the U.S. Internal Revenue Service (IRS) on each of their U.S. clients. If an institution does not comply, the U.S. will impose a 30% withholding tax on all its transactions concerning U.S. securities, including the proceeds of sale of securities. FATCA also requires any foreign company not listed on a stock exchange or any foreign partnership, which has 10% U.S. ownership to report to the IRS the details of any U.S. owner.

The UK is also planning to crack down on offshore tax havens by imposing its own version of FATCA. The proposal will not only force tax havens to reveal the identity of individuals behind concealed business entities, account holders and trusts, but also deal severely with those who try to hide money abroad. 

This move is a serious blow to those who avoid tax through the UK’s tax havens; Bermuda, Caymans, BVI. 

The UK will issue ultimatums to provide the data they are providing to the U.S., otherwise it will not pass their laws that allow data flow to the U.S. This policy may also take effect on January 1, 2014.

Hmm,did the OBA mention any of this? As the Verizon guys says “Can you hear me now?” In my next column, I will continue with the “Full Monty.” Buckle up Bermuda.