Bermuda: Cox rejects UK MP’s call for tax policy change

By added on 16/08/2012

Premier Paula Cox gave a mild rebuke last night to a British Member of Parliament who suggested if Bermuda wants the UK to keep providing its defence, it should change its tax policies to stop corporations using the Island to avoid UK taxes, reports the Royal Gazette.

Labour MP John Mann, a member of the UK House of Commons Treasury Select Committee, made the comment while talking about Google’s use of a Bermuda-based subsidiary to reduce its tax bill.

Ms Cox, who is also the Finance Minister, responded that Bermuda had no wish to change its tax rules and told the opposition lawmaker that Bermuda “pays all its own bills”, including the one for Bermuda’s Governor, the UK’s top representative on the Island.

The Independent newspaper reported that Google paid £6 million in UK taxes last year on turnover of £395 million.

The newspaper added that the tech giant operates a scheme under which its Irish subsidiary employs Google UK as an agent, meaning the proceeds of sales made in the UK end up in Ireland.

A commission of around 10 per cent is then paid back to Google UK. That fee is taxable once costs have been deducted.

Google Ireland then pays much of the money it makes to the internet giant’s Bermudian entity as a licensing fee, ensuring that a large portion of its turnover ends up on the Island, where the corporate tax rate is zero. The process is entirely legal.

“This sort of scheme is running, meanwhile we are providing a legal base and defence for Bermuda because it is a British dependency,” Mr Mann told The Independent.

“Firstly, we should be ensuring first of all that this is not possible across the EU. There is no point being in if you can tax dodge.

“Secondly, if Bermuda or any other British dependency wants our help with defence, then it should stop operating this sort of tax policy. We are paying twice because we are paying for Bermuda.”

Mr Mann suggested the Bermuda Government should take a stronger stance on tax avoidance schemes which “hit British tax receipts”.

The MP for Bassetlaw did not respond to this newspaper’s requests for further explanation of his remarks by press time yesterday.

Last night Premier Cox responded: “We have no Intention of changing our centuries-old tax laws which continue to serve the needs of our people.

“I would also take this opportunity to remind Mr Mann that Bermuda pays all of its own bills, including the bill for Bermuda’s Governor.”

She added that Bermuda was an “international leader in tax transparency” and the vice-chair of the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes.

“The Bermuda Government will continue to stand strong for Bermudians and we will continue to work to attract new business to our shores that provide opportunities for our people,” Ms Cox added.

“Bermuda is a global financial centre that offers speed to market, intellectual capital and an stable environment from which to operate a global business. Since the beginning of international business in Bermuda this has been our main drawing card.”

Mr Mann is determined to shine the light on the methods used by Google to minimise its tax burden. He said the Treasury Select Committee may call on Google bosses to appear before it, to address the tax avoidance concerns. He described the company’s tax practices as “entirely improper and immoral”.

“I think it would be highly appropriate to pull a Google executive in front of the committee to justify their failure to pay proper taxes, we would be looking at covering the issue in this parliamentary session, so before Easter, realistically,” he told The Independent.

“Whether it is illegal or immoral, the British taxpayer loses out. Google is one of the big ones but there are others.”

Google has no physical presence in Bermuda. However, a Bloomberg news report in 2010 highlighted company filings that stated Google Ireland Holdings had its “effective centre of management” on the Island.

The report added that “this Bermuda-managed entity is owned by a pair of Google subsidiaries that list as their directors two attorneys and a manager at Conyers Dill & Pearman, a Hamilton, Bermuda law firm”.

Many international companies use “transfer pricing” to attribute profits to subsidiaries in low-tax jurisdictions. This often involves transferring the ownership of intellectual property to the subsidiary. Other parts of the organisation must then pay royalties on sales to the subsidiary through licensing agreements.

The practice is particularly commonplace among technology and pharmaceutical companies.

A Google spokesman told The Independent: “We make a substantial contribution to the UK economy through local, payroll and corporate taxes. We also employ over 1,000 people, help hundreds of thousands of businesses to grow online and invest millions supporting new tech businesses in East London. We comply with all the tax rules in the UK.”