Journalicious Dots from Switzerland

¶1. (SBU) In June 2009, the Government of Bermuda moved onto the OECD’s “white list” with the signing of the minimum required 12 Tax Information Exchange Agreements (TIEAs). Bermuda Government officials and international businesses hope that Bermuda’s placement on the white list will deter possible U.S. legislation directed at tax havens that could drive business away from Bermuda. Bermuda took quick action after the OECD in April 2009 included Bermuda on the “grey list” of jurisdictions that have committed to international tax transparency standards but not yet implemented them. End summary.

The Crackdown on Tax Havens

¶2. (U) Spurred by public outrage over big bonus-earning bankers and high-profile frauds by wealthy financiers, leaders pledged at the April G20 Summit in London to clamp down on tax havens. At the same time, the OECD issued its “grey list,” which was split into two parts – one of countries, including Bermuda, labeled “tax havens” and another group, including SWITZERLAND and Singapore, which were labeled “other financial centers.” The OECD “grey listed” Bermuda in its progress report April 2, 2009 citing its lack of follow-up action since the island’s commitment to international tax transparency standards nine years ago. The OECD defines a tax haven as a jurisdiction with no or nominal tax, a lack of information exchange, a lack of transparency, and no substantial local activities. Soon after the progress report was published, Jeffrey Owens of the OECD’s Centre for Tax Policy and Administration explained that “Low tax alone does not classify any place as a tax haven, the key thing is to have effective exchange of information.” Bermuda has focused on the TIEAs to prove its position that it is not a tax haven.

Bermuda acts to avoid “tax haven” label

¶3. (U) As of April 2009, Bermuda had only three Tax Information Exchange Agreements (TIEAs), but it rapidly implemented the OECD’s standard by signing nine agreements in two months so that by June, Bermuda had moved on to the “white list.” Minister of Finance Paula Cox stated that “Bermuda is not a tax haven. The OECD has stated that in relation to tax matters, the only distinction to be made between jurisdictions is on the basis of whether or not they are cooperative. Bermuda is cooperative and has now concluded 12 information exchange agreements.” The OECD expects countries to continue to negotiate more agreements after they have reached the minimum 12 required TIEAs as it is interested in seeing how these agreements work in practice and seeing real change.

¶4. (SBU) As of October 21, 2009 Bermuda has signed 18 TIEAs with the United States, Australia, United Kingdom, Denmark, Norway, Sweden, the Faroe Islands, Greenland, Iceland, Finland, Ireland, New Zealand, the Netherlands, France, Germany, Japan, Mexico and Aruba. Finance ministry officials stated that these agreements had been in the works for several years but Bermuda had failed to meet the April 2009 deadline. (Bermuda executed its first TIEA in 1986 in a treaty between the United States, the United Kingdom, and Bermuda.) Finance Ministry Permanent Secretary Donald Scott explained to the Consul General on October 23 that Bermuda had to get its legislative framework for the TIEAs in place. Bermuda first liaised with the UK in order for the Government of Bermuda to engage directly with OECD members. (Note, Bermuda is not a member of the OECD.) Bermuda also accelerated its effort to conclude TIEAs by creating a unit to deal with treaty matters. Scott noted that Bermuda has other TIEAs in the pipeline with Canada, Spain and Portugal.

¶5. (SBU) Scott also cited as evidence Bermuda is a cooperative jurisdiction its active involvement since 2003 as a member of the Caribbean Financial Action Task Force (CFATF), a regional body that is an associate member of the Financial Action Task Force (FATF). CFATF seeks to implement common countermeasures to address the problem of criminal money laundering and tax cheating. Bermuda also enacted the Anti-terrorism (Financial and Other Measures) Act in 2004, the Financial Intelligence Agency Act in 2007 and the Proceeds of Crime (Supervision and Enforcement) Act in 2008 to enforce the island’s financial regulatory system. In 2009, Bermuda successfully lobbied to become joint vice-chairman of the Steering Group of Global Forum of the OECD. Bermuda sought this position to demonstrate its bona fides as a cooperative jurisdiction in international tax matters as well as to gain a position of influence in the future direction of international tax cooperation matters.

Comment

¶6. (SBU) This progress is a demonstration of Bermuda’s commitment to meeting the OECD’s requirements and staving off any label or image as a “tax haven.” During this recession, Bermuda`s officials, international companies and public are focused on possible legislation targeted at tax havens that could threaten the international business activity in Bermuda, which is critical to its economic success. The move puts Bermuda in the company of such nations as Argentina and the British Crown dependencies and ahead of rival jurisdictions such as the Cayman Islands, British Virgin Islands, SWITZERLAND and Turks and Caicos.

SHELTON

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