By NEIL HARTNELL
Tribune Business Editor
JOINING the World Trade Organisation (WTO) may give the Bahamas “the tools to fight” initiatives unfairly targeting its financial services industry, the Deputy Prime Minister said yesterday.
K P Turnquest told Tribune Business that the Bahamas had “nothing to fight with” when the likes of the European Union (EU) and Organisation for Economic Co-Operation and Development (OECD) threatened to ‘blacklist’ this nation on questionable grounds.
Recalling how Barbados had in 2001 used its WTO membership to file trade disputes and counter the OECD’s ‘harmful tax competition’ initiative, Mr Turnquest said the Government’s goal of acceding to full membership in global trade’s rules-setting body by 2019 could help provide more protection for the financial services industry.
“Oddly enough, this is one of the areas where accession to the WTO may help us,” he told Tribune Business. “Right now, there’s nothing to fight with. We’re operating on our own, having to fight or beat back competition from developed states.
“We have very few tools to fight with, although one of them is that we’re ideally located with a stable political environment and low tax entry point.”
Mr Turnquest yesterday conceded that Barbados was not the best example, given that it was one of the 17 nations included on the EU’s just-published ‘blacklist’. Yet there is little doubt that the Government views full WTO membership as providing potential protection against the OECD and EU’s excesses.
John Delaney, the former attorney general who co-chairs the Government’s economic advisory council, told Tribune Business earlier this week that the Bahamas needed to form “strategic alliances” to protect its financial services and economic interests from unfair international attack.
He suggested that the WTO “might be an avenue” for the Bahamas to achieve such an objective, given that the ‘blacklisting’ and international regulatory pressures experienced over the past two decades are unlikely to ease up.
Mr Turnquest, meanwhile, acknowledged there was a case for “overreach” by the OECD and EU in seeking to dictate what a sovereign nation’s tax system should be. Yet the Bahamas was now in an environment where it had to prove to that its taxation system did not permit foreign companies and individuals to avoid/evade tax obligations in their home countries.
“Yes, one can say that it is an overreach by these [organisations] and member states to dictate to the rest of the world what their tax structures ought to look like,” the Deputy Prime Minister told Tribune Business.
“We are a sovereign country, and ought to determine what’s in the best interests of our country and people, and ought not to be forced into any structure. We are a services-based country and ought to be able to freely determine the best course with that.”
Pointing out that the Bahamas consumes “everything” the outside world produces, Mr Turnquest said the current tax system had proven to be “the most efficient tax base for us”.
However, he acknowledged that the Bahamas could not be perceived as facilitating tax evasion/avoidance through the absence of any type of income tax, and needed to prove this was the case to the international community.
“Again, it’s a matter of being fair to all concerned and demonstrating that our tax system does not allow or inherently permit any kind of tax evasion and avoidance,” he said, in a nod to OECD/EU concerns about the erosion of their members’ tax bases.
The Bahamas was on Tuesday effectively given a 12-month reprieve by the EU, which included this nation among eight states excluded from consideration for its ‘blacklist’ because of the damage inflicted by Hurricanes Irma and Maria.
The EU will resume scrutiny of this nation, and the likes of British Virgin Islands (BVI), Turks & Caicos and Anguilla, in February 2018, and compliance with its demands - and the various OECD initiatives - are still likely to cause concern for the Bahamas and its financial services industry.
The first of the EU’s three criteria for determining whether jurisdictions are non-cooperative are tax transparency, which involves compliance with the OECD’s Common Reporting Standard (CRS) - the adopted global standard for automatic tax information exchange.
The House of Assembly yesterday passed three Bills (see other articles in Tribune Business today) to bring the Bahamas into compliance with the CRS, and enable it to begin sharing automatic tax information on a multilateral basis by September 2018. This will also facilitate the Government next week signing on to the Convention for Mutual Administrative Assistance in Tax Matters, permitting the multilateral approach.
While this will enable the Bahamas to satisfy the EU’s ‘tax transparency’ demand, the other two are more problematic. Meeting the 28-member bloc’s third condition requires the Bahamas to comply with the OECD’s Base Erosion and Profits Shifting (BEPS) initiative.
This aims to prevent tax avoidance by multinational companies, who using legal and creative mechanisms to shift profits from higher tax to low tax jurisdictions, enabling them to enjoy significant savings while eroding the tax bases of certain countries.
The Bahamas has already signalled its intent to comply with BEPS by adopting a ‘minimum’ four of 15 actions. However, one of the ‘actions’ it plans to implement is ‘no harmful tax practices’, and this is where the potential difficulty lies.
For the Bahamas has no corporate income tax, yet the OECD considers countries with a corporate tax rate of less than 10 per cent to be guilty of ‘harmful tax practices’. Mr Turnquest this week said the Bahamas had proposed to the OECD how it can provide “the information requested” without having to implement a corporate income tax, although he did not go into detail.
BEPS compliance also feeds into the EU’s last criteria, which is that nations must provide ‘fair taxation’. This ill-defined notion is highly subjective, and will mean different things to different people, with many observers viewing it as undermining the sovereignty of individual nation to choose the tax system that best fits them.
Countries with ‘offshore structures’ that can be used to facilitate tax avoidance of the type BEPS is intended to counter will run afoul of this demand, meaning the Bahamas and other international financial centres (IFCs) may have to take further action to ward off the EU.