In 2014 Ireland imported €4.8 billion euro of services from Bermuda with the Netherlands importing €13.9 billion of services from Bermuda in the same period. In 2014 Ireland and the Netherlands accounted for 86 per cent of the EU’s service imports from Bermuda. Luxembourg had imports of €1.6 billion and the UK figure was €0.4 billion. Total service imports from Bermuda for the remaining 24 countries of the EU was €1.0 billion. This is a total of €21 billion of inflows to Bermuda from EU countries under the guise of services.
Bermuda is a small island in the North Atlantic. It is a British Overseas Territory and has a population of around 70,000. It has a GDP of around US$5 billion which gives a pretty impressive per capita figure of around US$80,000.
But a quick question emerges. If Bermuda is receiving nearly €18 billion in exports to just two countries (Ireland and the Netherlands) why isn’t this showing up in value-added in the Bermudan GDP figures? Bermudan GDP is high but it should be off the charts. Are there offsetting imports to Bermuda?
Here is a table from Bermuda’s Department of Statistics giving the payments and receipts of the Current Account.
In the receipts panel we can see that total service receipts are BD$1,377 million. The Bermudan dollar is on a one-for-one peg with the US dollar.
So at one end we have €18 billion of payments flowing out of Ireland and the Netherlands with the data at that end showing this as flowing to Bermuda. At the other end we have no sign of this being reported as an inflow in Bermuda. It seems there is a Bermuda triangle in the Balance of Payments.
Is it difficult to know what is going on. It could be due to coverage with the Bermudan authorities simply choosing to ignore these flows on the basis that the services receipts would be fully offset by income outflows. The only significant income flow in the table above is receipts of Employee Compensation.
It could be a definitional issue with only ‘local’ companies included. The Bermuda statistics release includes the following:
Resident: The concept of residency is very important in the BOP because the BOP is in fact a statement of transactions between residents and non-residents. A unit must have a centre of predominant economic interest within an economic territory for at least one year or more to be considered resident of that territory.
It could be that the entities receiving the payments from Ireland and the Netherlands are not considered residents of Bermuda. The infamous double-irish scheme devised to avail of the ‘same-country exemption’ in US tax law is based on two Irish-incorporated companies – one which is resident in Ireland and one which is not.
A key feature is that the second company is deemed non-resident in Ireland as the test of management and control rather than the test of incorporation is applied. Of course, there is nothing to say that territory in which management and control is exercised considers the company resident there. What matters is that the company is non-resident in Ireland and, of course, residency or otherwise doesn’t really matter in Bermuda as the rate of corporate income tax is nil.
It is likely the case that the payments are being made to entities that are essentially ‘stateless’. Thus we have a situation where companies are reporting outgoing payments in Ireland and the Netherlands to Bermuda but are not having the equivalent inbound payments recorded in Bermuda. And these are all likely to be intra-group transactions.Tweet