For Google’s sake…

There is a thought-provoking Bermuda blogger called Denis Pitcher, aka 21 Square, whose Blogposts I enjoy reading. His most recent Blogpost asked the questions “Why are Google profits good for Bermuda”, and “Why do we cater to companies like Google”?

In this context, the reference to Google is effectively a reference to all exempt companies, partnerships, or trusts incorporated or established in Bermuda that are ‘exempt’ from local Bermuda corporate tax and certain other regulatory requirements, and which do not directly employ a local labour force. It is hard to be precise, but there are thousands (probably tens of thousands) of such exempt companies based in Bermuda (and hundreds of thousands in jurisdictions such as the BVI and the Cayman Islands).

Mr. Pitcher invites a debate, and so I am happy to try to contribute to the discussion.

There is definitely a case to make that Bermuda would benefit from explaining to the rest of the world that there are a whole host of taxes and Governmental fees payable locally (notwithstanding the exemption from – or 0% – corporate tax). One idea that has been floated is to re-name Payroll Tax as Income Tax – which is better understood in countries like the UK, and can help answer the misconceived assertion that Bermuda is a pure ‘tax haven’ or ‘paradis fiscal’. Most residents of Bermuda would argue that the direct and indirect taxes payable on everyday life, and the high cost of living locally, makes the idea of Bermuda being a ‘tax haven’ utterly ridiculous.

It would also be helpful to remind the critics that exempt companies like Google etc are obliged to pay whatever taxes might be levied against them in the other countries where they do business or hold assets (and Bermuda is happy to provide whatever information might be required to assist the relevant tax authority with its enquiries in this respect, whether automatically or on request). So if the UK or the US wish to levy taxes on Google for revenues earned, profits booked, or assets held, in other jurisdictions (i.e. Bermuda), good luck to them.

Mr. Pitcher proposes that the Bermuda Government forces exempt companies to employ, directly, a minimum number of people locally in Bermuda, according to their size (in terms of their gross worldwide profits).

This proposal, if I may say so, is not very different to a proposal that Government simply increases the annual fees payable by exempt companies, by reference to their global profit (which would be quite difficult to administer or verify – whether on a gross or net basis – absent local filing requirements, over and above self-certification). But Mr. Pitcher’s proposal, rather than a fee to Government (which Government can then apply for the good of society, including by way of job creation in the public or private sector, or welfare benefits for those unable to work), he appears to suggest that an exempt Company should bear the responsibility of job creation (with all of the costs, overheads, recruitment challenges, welfare benefits, and administrative inconvenience of doing so in a jurisdiction like Bermuda, with a finite pool of available employees with relevant qualifications). If one were to step back a moment, and to assume a well-run Government and civil service, one would probably acknowledge that job creation and the administration of welfare benefits is better organized on a centralized basis by Government, rather than on a de-centralized basis with each exempt company having to organize such matters for itself (without knowing whether work permits or residence requirements will be granted for the employees of its choice, and without knowing whether housing or schooling or long-term career opportunities will be readily available for those employees).

Mr. Pitcher’s basic premise, I would suggest, also requires further data, analysis and testing – although there is an inherent difficulty in answering the question which he poses given the fact that the Bermuda-based professional service providers which profit, directly or indirectly, from the incorporation, administration, management, and provision of corporate, financial, fiduciary, legal, accounting audit, investment and professional services to exempt companies do not publish details of their profits (although they obviously employ a very large number of people locally in Bermuda, who directly and indirectly contribute an enormous amount to the Bermudian economy, thanks to the large number of exempt companies (and other vehicles) incorporated or established here, such as Google etc, by whom they are indirectly employed).

So, in short, Google etc. are good for Bermuda, not bad.

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