The oft-delayed OECD’s tax rules are starting to kick in before they are even in place, with Bermuda among the first to raise its corporate tax rate from zero. 

Someday, it may become an odd footnote of history that almost all the places in the world that still have no corporate, income, or capital gains taxes were once British colonies or dependencies. 

In the post-war era, when many of them started to claim independence, it was often seen as the first, tangible step to grow their economies and get a piece of the international wealth and asset pie.

Last Days

Still, in hindsight, it seems inconsistent with the practices in the UK itself, particularly given the discussions earlier this year around the former conservative government’s last Spring Budget and the oft-discussed reformed non-dom tax regime.

Despite that, a graphic released by online publisher Visual Capitalist earlier this month may be a point-in-time illustration of the last days of zero tax in the world - at least when it comes to corporate rates.

The First to Go

The interesting takeaway is that Bermuda is already breaking ranks by introducing a 15 percent tax rate in 2025, even though it is by no means certain that the oft-delayed OECD rules will be in effect by then.

Although finews.asia commented in late 2021 that offshore tax havens would bear the brunt of the new rules and that it was generally accepted that much of the Caribbean had been bludgeoned into accepting the OECD agreement, we were not prescient enough to predict a sole outlier, particularly one as large or significant as Bermuda.

Initial Success

That does, however, suggest that the offset mechanisms in the OECD’s so-called Pillar 2 are already having an impact, with US-based non-profit, The Tax Foundation, calling Bermuda’s decision to levy corporate taxes an «initial success» for the intergovernmental organization.

«The choice for Bermuda in this scenario appears straightforward: either tax corporate income or risk losing the income to other jurisdictions,» the foundation stated.

Less Investment

However, they also said that this step will possibly have unexpected consequences, given offshore financial centers route money from high-tax jurisdictions to low-tax ones, and that the subsequent profits are re-routed back to places with higher tax rates. «Without these financial centers, companies would have less capital to invest, and foreign direct investment (FDI) flows would be affected,» the foundation maintained.

Historical Example

Ironically, one of the countries that were the staunchest advocates of the OECD rules, France, will potentially see a fall in foreign investment flows, along with Germany and the US.

According to the foundation, that is exactly what happened when the US closed off offshore tax avenues in Puerto Rico. «What might appear to be an achievement for global tax negotiations may have negative consequences when viewed through a wider lens,» they indicated.

No Guarantees

Still, there are no guarantees that the global tax deal will happen even though 140 countries signed up to it in 2021, according to an «Economist Intelligence» report released in March.

A key determinant will be the upcoming US elections. According to them, chances will be higher that the world’s largest economy will participate in the agreement if the democrats are re-elected, and more than unlikely if former president Donald Trump wins.

Asian Impact

But, in all this, the impact is likely to be less harsh in other jurisdictions traditionally seen as low tax, including Singapore, Hong Kong, Switzerland, and Liechtenstein. 

That is because they also generate significant economic activity in and of themselves from various industries – and they all have thriving financial sectors.

Reinvented Havens

The OECD rules also don’t mean that tax havens won’t manage to reinvent themselves in one way or another, as most also do not levy income or capital gains taxes.

Given it is extremely unlikely that there will ever be a coalition of countries willing to regulate that to any great extent, a remnant of the post-colonial era may end up being the gift that keeps giving to digital nomads a half-century or so later.