by Walton Brown
David Cameron hosts a meeting with the heads of the overseas territories and crown dependencies. Photograph: Nick Ansell/PA
Much of the recent discussion around large corporations not paying taxes in places where they do business has focused on "tax havens". David Cameron's recent meeting with the UK's overseas territories and crown dependencies was meant to show his determination to get the United Kingdom's proverbial house in order and show his G8 colleagues he has the wherewithal to do so. Both efforts came across as petulant political posturing.
If you take the case of Bermuda, the 53 sq km colony with 65,000 residents has long had a tax system based on indirect taxation (mostly customs duties on virtually everything imported) and a tax on wages and salaries. We do not have taxes on corporate earnings or investment income – never have. That doesn't make us a tax haven; just different from other countries. Part of the problem for places such as Bermuda is we never contested the notion of being an "off-shore" jurisdiction and were thus rendered peripheral and of questionable legitimacy in the eyes of many.
Bermuda grew as an international business centre because of the island's strong infrastructure, its educated workforce, attractive legal framework and low tax structure. Over the last 15 years, when the OECD and the Financial Action Task Force began its continuing commentary on "harmful tax regimes", Bermuda signed 42 tax information exchange agreements with countries seeking information about their citizens and companies. We signed the first tax agreement with our largest trading partner, the United States, in 1988. All a signatory country has to do is submit the tax request and Bermuda responds. More importantly, the country has met every international obligation in this area and continues to assess developments to ensure we conform to international best practices.
So, what exactly was the purpose of Prime Minister Cameron "summoning" the leaders from the remnants of the British empire to London? From the perspective of Bermuda, which has long been engaged with FATF and the OECD, and embraced know your customer (KYC) long before it became mainstream, this looks like an embattled leader fighting to show his voters his determination to bring tax revenue back to Britain and shore up his tenuous tenure. And it seems he was determined to bring something concrete to the G8 meeting, held on his soil, so as not to be marginalised by the real powerbrokers – the United States, Germany and Russia. That is not our battle.
But in taking this step, Cameron has extended the reach of the UK beyond its constitutional powers with regard to Bermuda. Under Bermuda's constitution – admittedly, merely an order in council of the UK parliament – Bermuda retains power over economic and fiscal matters, not the UK. Cameron's actions have shown little regard for the allocation of powers under our constitution and it does not bode well for the future. On the one hand, every leader who attended the 15 June meeting validated UK authority to involve itself in such matters; and more involvement will no doubt be attempted. On the other hand, continued involvement by the British government will raise the possibility of resistance to UK sovereignty over the island by an unlikely group – business leaders.
Independence has been an issue little discussed since the 1995 referendum, when a low turnout spurned by a boycott called by one of the two parties saw a firm rejection of nationhood. If Britain continues down the path of meddling in the economic affairs of overseas territories and seeming to dictate a course of action, particularly while the territories are already working to meet international obligations, there will be a battle akin to that of David and Goliath. But for the David that is Bermuda the recourse may simply be the path to autonomy.