Location of the British Overseas Territory, Bermuda.

Bermuda black hole refers to base erosion and profit shifting (BEPS) tax avoidance schemes in which untaxed global profits end up in Bermuda, which is considered a tax haven. The term was most associated with US technology multinationals such as Apple and Google who used Bermuda as the "terminus" for their Double Irish arrangement tax structure.

Definition

See also: EU illegal State aid case against Apple in Ireland

"Bermuda black hole" was used in relation to US corporate tax strategies that routed un-taxed profits to Bermuda, where they did not emerge again for fear of being subject to US corporation tax. Instead, the untaxed profits were "lent out" to the corporate parent, or its subsidiaries, thus avoiding the risk of incurring US taxation. The Bermuda black hole led to US corporations amassing over US$1 trillion in offshore locations from 2004 to 2017 (before the Tax Cuts and Jobs Act of 2017).[1][2][3][4]

A "Bermuda black hole" became the most favoured common final destination for the Double Irish with a Dutch Sandwich base erosion and profit shifting (BEPS) corporate tax avoidance strategy as used by US multinational technology firms in Ireland; and particularly Apple and Google.[5][6][7][8][9][10][11] Apple's "Bermuda black hole", called Apple Operations Ireland ("AOI"), became part of a 2013 US Senate inquiry by Carl Levin and John McCain,[12] which led to the 2014–2016 EU Commission inquiry and a US$13 billion fine, the largest corporate tax avoidance fine in history.[13][14]

The term "black hole" is not unique to Bermuda and has been used to describe other uses of offshore tax havens, such as the "Cayman black hole".[15][16]

Replacement

Main article: Conduit and Sink OFCs
Uncovering Offshore Financial Centers: List of Sink OFCs ordered by value (highlighting U.K. dependencies)

A seminal 2017 academic study published in Nature magazine on the classification of tax havens and offshore financial centres used the related term of "Sink offshore financial centre", instead of "black hole", to describe locations like Bermuda as: "jurisdictions in which a disproportional amount of value disappears from the economic system".[17] In the study Bermuda was ranked as the 5th largest of 24 Sink OFCs identified and classified in the study (see graphic).[17]

The 2017 study, which was titled Uncovering Offshore Financial Centers: Conduits and Sinks in the Global Corporate Ownership Network, used quantitative analysis techniques to prove that some global jurisdictions act like corporate taxation "black holes" (e.g. the Sink OFCs), where funds are sent as their legal "terminus".[17] However, the study showed how the Sink OFCs rely heavily on jurisdictions that act as Conduit OFCs in routing untaxed global profits to the "black holes".[17]

2017 TCJA

Main article: Double Irish arrangement § Effect of the Tax Cuts and Jobs Act (TCJA)

Tax academics believe that the change in the US corporate tax code from the Tax Cuts and Jobs Act of 2017 (TCJA) should diminish the ability of US corporations to use offshore structures that shield untaxed profits from US taxation, such as "Bermuda black hole" (or Bermuda Sinks), as global US corporate income is now deemed automatically repatriated to the US under the TCJA. It is therefore likely that the term "Bermuda black hole" will not remain in common use.[18]

See also

References

  1. ^ Nassim Khadem (10 April 2015). "Apple, Google, Microsoft cop tax audit". Sydney Morning Herald. Retrieved 12 April 2019. Labor Senator Sam Dastyari said: "Any inquiry that results in people learning about a Double Irish Dutch sandwich and a Bermuda black hole is a good day for public policy. It's important to shine a light on the dark corners of corporate tax minimisation."
  2. ^ "The real story behind US companies' offshore cash reserves". McKinsey & Company. June 2017.
  3. ^ Saleem Shah (3 May 2016). "Offshoring Money: A Threat to Democracy". Daily Times (Pakistan). Retrieved 12 April 2019. In 2010 it was reported that Google uses techniques called the "Double Irish" and "Dutch Sandwich" to reduce its corporate income tax to 2.4%, by funneling its corporate income through Ireland and from there to a shell in the Netherlands where it can be transferred to a "Bermuda Black Hole", which has no corporate income tax. The company also uses an avoidance structure in Asia called the "Singapore Sling".
  4. ^ David Greene (14 April 2016). "Avoidance or evasion?". New Law Journal. Retrieved 12 April 2019.
  5. ^ "Apple's cash mountain, how it avoids tax, and the Irish link". Irish Times. 6 November 2017.
  6. ^ "After a Tax Crackdown, Apple Found a New Shelter for Its Profits". New York Times. 6 November 2017.
  7. ^ "'Double Irish' and 'Dutch Sandwich' saved Google $3.7bn in tax in 2016". Irish Times. 2 January 2018.
  8. ^ "Google's 'Dutch Sandwich' Shielded 16 Billion Euros From Tax". Bloomberg. 2 January 2018.
  9. ^ "'Double Irish' limits Facebook's tax bill to €1.9m in Ireland". Financial Times. 5 December 2013.
  10. ^ "Facebook paid just €30m tax in Ireland despite earning €12bn". Irish Independent. 29 November 2017.
  11. ^ Drucker J. (2010). The Tax Haven That's Saving Google Billions. Business Week.
  12. ^ Senator Carl Levin; Senator John McCain (21 May 2013). "Offshore Profit Shifting and the U.S. Tax Code - Part 2 (Apple Inc.)". US Senate. p. 3. A number of studies show that multinational corporations are moving "mobile" income out of the United States into low or no tax jurisdictions, including tax havens such as Ireland, Bermuda, and the Cayman Islands.
  13. ^ "COMMISSION DECISION of 30.8.2016 on STATE AID SA. 38373 (2014/C) (ex 2014/NN) (ex 2014/CP) implemented by Ireland to Apple" (PDF). EU Commission. 30 August 2016. Brussels. 30.8.2016 C(2016) 5605 final. Total Pages (130)
  14. ^ Adam Davidson (31 August 2016). "How Apple Helped Create Ireland's Economies, Real and Fantastical". The New Yorker. Retrieved 13 April 2019.
  15. ^ "RECOVERING ILLICIT ASSETS OFFSHORE: DEMYSTIFYING THE BLACK HOLE". KRyS Global. June 2016.
  16. ^ "The Governance of the Black Holes of the World Economy: Shadow Banking and Offshore Finance". City University (London). June 2013.
  17. ^ a b c d Garcia-Bernardo, Javier; Fichtner, Jan; Takes, Frank W.; Heemskerk, Eelke M. (24 July 2017). "Uncovering Offshore Financial Centers: Conduits and Sinks in the Global Corporate Ownership Network". Scientific Reports. 7 (1). Nature Magazine: 6246. arXiv:1703.03016. Bibcode:2017NatSR...7.6246G. doi:10.1038/s41598-017-06322-9. PMC 5524793. PMID 28740120.
  18. ^ Mihir A. Desai (26 December 2017). "Breaking Down the New U.S. Corporate Tax Law". Harvard Business Review. So, if you think about a lot of technology companies that are housed in Ireland and have massive operations there, they're not going to maybe need those in the same way, and those can be relocated back to the U.S.
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