British Prime Minister David Cameron spent this past weekend negotiating a tax transparency agreement with the UK’s overseas territories, in an apparent attempt to curtail legal tax avoidance. In order to get to the bottom of what makes a tax haven a tax haven, The Gabbler spoke with overseas territory and offshore financial center, Bermuda, this weekend.
The Gabbler: So, Bermuda, where are you hiding the tax revenue? TELL ME WHAT YOU KNOW!!!
Bermuda: Ummm, what are you talking about?
TG: Don’t play dumb with me! Google only paid 3.2% in overseas taxes this year after shifting 80% of their pretax profits (a cool $9.8 billion) to a shell company in, dun, dun, dun! Bermuda! So where’s the rest of the tax revenue?!
B: There is no “rest of the tax revenue.” That’s the point. They legally paid all the taxes that they owed internationally.
TG: But..3.2%? I didn’t even pay that low a percentage when I was making $7/hour working part time in retail!
B: Well, Bermuda’s tax structure is, and has been for centuries, almost completely based on consumption taxes. It’s just kind of how we do things here.
TG: That sounds awesome! No taxes! Your paycheck is your paycheck! Suck it big government! You can take your bloated defense budget and shove it where the sun don’t shine! I’m taking my non-taxed paycheck and spending it on a new bag!
B: Okay, first of all, Bermuda doesn’t have a bloated defense budget. The only defense we have is the Bermuda regiment, which is obligatory for almost all Bermudian males over the age of 18. They meet about once a month for training exercises and mostly just march around in ceremonial exercises and look handsome for the tourists, unless there’s a natural disaster, like a hurricane. So I wouldn’t exactly call that “bloated.” Secondly, you realize that if you took your non-taxed paycheck and bought a new bag, you would be paying the consumption tax and that would go right back to the government, just like an income tax.
TG: Fine, I’d buy it online and ship it in. What you gonna do now, Bermuda? I’m a regular Google! Avoiding taxes, legally.
B: Except you’d have to pay duty, which would go back to the government, just like an income tax. In fact, duty is basically what I mean by a consumption tax, since all retailers have to pay duty on the merchandise they ship in, a cost which of course is passed on to you, the consumer. And all of our merchandise is shipped in. We basically have no manufacturing sector.
TG: Honestly, Bermuda, you’re kind of surprising me here. For a sketchy tax haven who’s completely overrun with money launderers and shell companies, you seem so…legit.
B: Legit is not a word, young lady. Legitimate, however, is. And yes, we are legitimate. Our taxation structure is different, perhaps, but certainly not designed to be “sketchy” or that of a tax haven.
TG: I beg to differ, my dear island nation. According to a 1981 report by the IRS, “a country is a tax haven if it looks like one and is considered to be one by those who care.”
B: Well, well, well. What a precise and recent definition!
TG: I’m just saying. You certainly LOOK like a tax haven. All those light blue waters fading to a deep teal after the reefs? That’s like THE picture at the beginning of every story about tax havens ever. You have to admit, the Cayman Islands, Bermuda, the British Virgin Islands, you all look a little bit the same. And you’ve all been accused of being tax havens.
B: I think you’re confusing the terms “tax haven” and “subtropical and tropical islands.”
TG: Maybe, maybe not. How about the second half, then? I consider Bermuda a tax haven and I care. I care A LOT. I mean, I may not be British, but even I can see that their people are buckling under these extreme austerity measures and meanwhile Google made $18 billion last year in Britain and paid $16 million in taxes. So, yeah, I think I care.
B: It’s not the responsibility of Bermuda to close the tax loopholes of the UK. We can’t rewrite our entire tax code to accommodate the UK or the US, it would destroy our economy. All international business would leave and we would be stuck surviving off a five month cruise ship season. And shockingly enough, an economy can’t really sustain itself off of t-shirt purchases alone.
TG: Listen here, Bermuda, you better listen to the UK and the US, because you wouldn’t be anyone without them. You’re still a colony of the UK, for goodness sake!
B: First of all, I’m an Overseas Territory, not a colony. And I have my own constitution, my own government, my own parliament, and my own premier.
TG: Okay, but you still belong to them. And the US, you owe them for almost your WHOLE economy. Your precious cruise ship season, that international business you cling so tightly to. You OWE them.
B: Seriously? Do you even know who you sound like?
TG: A supremely intelligent and attractive twentysomething with a body to rival Kate Upton’s?
B: Ummm…no. To all of that. You sound like Google. Or Amazon. Or Starbucks. Or any of the giant corporations whose basic response to issues of tax avoidance (and its morality) is: you should be grateful that we even gave your country the time of day and created all these jobs and brought in all this revenue.
TG: Well, yeah, but they still need to pay taxes!
B: I agree. Listen, I’m not opposed to taxes. I have a well-staffed government with all the necessary services of a modern-day society: police, fire fighters, public libraries, well-maintained roads, clean streets. That stuff’s not free. I just want to be able to maintain the tax structure that has funded all of those services over the years without having to answer to countries who are unwilling to close their own loopholes and instead blame offshore financial centers for all their problems.
TG: Yeah, but, but, but, Google!
B: Listen, the whole Google situation isn’t great. I never said it was. I regret if they’ve been untruthful with the British government about any of their dealings. And I honestly understand why Prime Minister David Cameron is now asking all Overseas Territories to sign a new document providing more transparency in issues of offshore company holdings.
TG: Is he?
B: Did you do any research for this interview?
TG: Eh, I figured you’d just be this rock in the middle of the ocean without much to say, so I didn’t really think it was necessary.
B: Okay, well, basically, Cameron has asked the heads of state of all the Overseas Territories to come to London this weekend, prior to next week’s G8 summit, to sign an agreement promoting greater transparency and information exchange between the territories and onshore countries. Bermuda’s premier, Craig Cannonier, has erroneously been portrayed by the British media as holding up the deal by refusing to sign. Basically, Premier Cannonier is looking for more time to carefully comb through the agreement with his Finance Minister to clear up any issues and really reflect on how it affects Bermudians.
TG: I knew you wanted to stay a tax haven! You’re not even willing to sign a paper to help out the great and mighty UK!
B: Okay, I can see this conversation is going nowhere. Please feel free to stay and enjoy my pink sand beaches and a Rum Swizzle or two. And please, please, please, don’t overstay the 90 days allowed to tourists or I’ll be forced to dump you into the Atlantic with just a lifejacket to keep you afloat.