By NEIL HARTNELL
Tribune Business Editor
The Bahamas is “in the best possible position” following last week’s OECD Global Forum, a private sector executive warning yesterday that it would have been “disastrous” not to agree to automatically exchange tax information.
Aliya Allen, the Bahamas Financial Services Board’s (BFSB) chief executive, said the industry would have been “unable to operate” had it been ‘grey or blacklisted’ by the Government not signing up to automatic tax information exchange as the global standard.
Yet she added that it was “incredibly important” that the Bahamas got what it wanted when it came to implementing this come 2018.
As revealed last week, the OECD Global Forum and member states accepted the Bahamas’ position that it will only exchange tax information automatically on a bilateral, or country-by-country, basis.
The pressure had been on for the Bahamas, and other international financial centres (IFCs), to commit to exchanging such client details on a multi-country basis by signing on to the OECD’s Multilateral Convention on Mutual Administrative Assistance in Tax Matters.
Ryan Pinder, minister of financial services, previously warned that automatic tax information exchange on a multilateral basis would have imposed “impossible obligations” on the Bahamas - both from a cost and administrative burden perspective.
Such an arrangement would also have exposed the Bahamas and its financial services clients to great risk, as this nation would have been unable to vet the various data protection regimes in the multiple countries it was exchanging tax information with simultaneously.
Given that the Bahamian financial services industry has many high net worth clients living in politically turbulent nations, which are also beset by high crime levels, these persons - and their families - could potentially be placed in great danger from any failure by this nation’s ‘exchange partners’ to properly use and protect data received.
The end result, of course, was the potential loss of valuable financial services for the Bahamas. Hence the Government, and private sector’s, preference for a bilateral not multi-country implementation mechanism.
“I think it was incredibly important that we retained some level of control in the way the standard is administered,” Ms Allen told Tribune Business .
“That is much easier to do when we negotiate with countries on a bilateral basis, as we did with FATCA. It allows us to ensure the appropriateness of exchange partners, and there were certain aspects of the Convention which we took extreme issue with, such as the spontaneous exchange of information, which were not present in the standard.”
She added: “We don’t have to abide by that. We had concerns about that, because you obviously want to ensure your treaty partners are able to keep that information confidential and secure it.
“It’s very difficult to do that on a multi-country basis.”
Ms Allen expressed hope that the Bahamas had delivered a message to the Global Forum, showing that while it was committed to complying with internationally-agreed standards, it was equally attached to
“ensuring its core wealth management business is protected and positioned for growth”.
She told Tribune Business: “I think the industry, while there might be different viewpoints on the direction the Bahamas is going, it realises the Bahamas could not operate with a black mark to its name, or if it was a blacklisted jurisdiction.
“That could have happened, and would have been disastrous.”
The BFSB chief executive said the automatic tax information exchange standard was modelled on the US Foreign Account Tax Compliance Act (FATCA) and the Intergovernmental Agreement (IGA) that the Bahamas yesterday signed with the US Treasury.
That represents the first bilateral automatic tax information exchange agreement the Bahamas has signed, and Ms Allen said of the Global Forum meeting outcome: “I think it’s the best possible position for the Bahamas.
She acknowledged that the process leading to automatic tax information exchange as the global standard had not been a smooth one.
Ms Allen said it had been reached more in ‘leaps and bounds’, rather than a “slow and steady progression” to greater transparency in the global financial services business.
““I think transparency, and operating in a more transparent framework, is really the new normal,” Ms Allen said. “Obviously, I think the new rules make operating in this space a much more complicated paradigm than before.
“From that perspective, it is really a case where this standard sort of ensures all of your institutions in the jurisdiction have to be much more cognisant of their clients and their tax regimes.”
Ms Allen said it was inevitable that administrative and compliance costs would increase, describing these as “part of the cost of doing business in financial services”.
The BFSB chief agreed that standards such as automatic tax information exchange were being “pushed upon jurisdictions without much say in how they’re formulated”.
She expressed hope that the Ministry of Financial Services’ engagement with the Global Forum and at the United Nations (UN) would give the Bahamas some influence over how automatic tax information exchange is implemented/
Acknowledging that the “devil is in the detail”, Ms Allen said there was still much uncertainty over how even FATCA would operate in practice.
Arguing that the Bahamian financial services industry was well-placed, she added: ‘The key going forward is ensuring we have a sustainable proposition, and certainly that cannot be founded on opaqueness.
“The Bahamas has recognised that quite a while ago, and institutions for many years have started reinventing themselves in that way.
“Certainly, the Bahamas is a compliant jurisdiction, and is largely well-positioned in the new paradigm.”