By Christopher Famous From Caribbean News Now

Bermudians have been repeatedly told that the imposition of term limits is the primary reason for the weak economy and decline in a standard of living. As if repeating this over and over again would somehow make it true.

That’s simplistic and baseless – several factors contributed to the sterilization of our golden goose. For the most part we can all take some of the blame. Many bought and still buy into the view that the PLP singlehandedly caused Bermuda’s economic demise. We are not masters of our domain and our economic fate will rise and fall with those of our major trading partners.

While the reinsurance industry sector has grown worldwide since the credit crunch in 2007/8, Bermuda has experienced a noticeable contraction and this trend may very well continue as low rates encourage mergers and consolidations, continuously bringing about redundancies.

Here are two prime challenges facing us in the Caribbean.

Repatriation

Global multi-country groups such as the OECD and the G20 have targeted offshore financial centres and low tax regimes such as Bermuda, BVI and Cayman Islands with unprecedented zeal as their member countries experienced serious financial crises post 2008. They are now pushing for strong clampdowns on tax avoidance by major global companies.

Recently, UK Prime Minister David Cameron made a statement referring to Google’s $6 billion tax avoidance, by using Bermuda to minimize its tax burden, as “unacceptable “and that he would go to the G20 conference to push for further ‘tax haven’ clampdowns.

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. Hence there is now a trend of global companies rushing to show greater responsibility by “repatriating” from Bermuda to either their home countries or those not on the OECD’s target list.

FATCA

The US Foreign Account Tax Compliance Act (FATCA), signed into law by President Obama in 2010, was introduced as a revenue raiser for the US government coffers depleted by the bailouts and to service the US national debt. The goal of FATCA is to expose US citizens, who evade paying US taxes by hiding assets in undisclosed foreign bank accounts.

FATCA is another heavy handed piece of legislation that effectively compels financial institutions (FI) world-wide to become a reporting arm of the IRS. Failure to comply means your FI may not transact in US dollars. As of January 1, 2014, FATCA required foreign financial institutions such as banks, stockbrokers, hedge funds, pension funds, insurance companies and trusts to provide reports to the US Internal Revenue Service (IRS) on each of their US clients.

If an institution does not comply, the US will impose a 30% withholding tax on all its transactions concerning US securities, including the proceeds of sale of these securities. FATCA also requires any foreign company not listed on a stock exchange that has at least 10% US ownership, to report the details of any US owner to the IRS.

The UK has its own version of FATCA. This forces Bermuda, BVI and the Cayman Islands to reveal the identity of individuals behind nominee concealed business entities, account holders and trusts. Additionally, it will also deal severely with those who try to hide money abroad for fraudulent purposes.

All of this compliance cost is borne by the financial institutions themselves, making offshore operations that much more costly.

Eggs in one Basket

These are the cold hard facts that will not go away. One day soon Uncle Sam and or John Bull may come knocking at our doorsteps with their hands stretched out.

IMAGE: chris_famous.jpg

Christopher Famous is a Caribbean real estate developer and business owner. Raised in various Caribbean islands such as; Bermuda, Jamaica, St Eustatius and St Kitts and Tortola. He has a weekly social and political column in The Bermuda Sun. Feedback to: [email protected]

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