The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A former Bahamas Financial Services Board (BFSB) chairman yesterday said “a lot is riding” on this nation’s ability to negotiate automatic tax information exchange agreements before the European Union (EU) publishes its threatened ‘blacklist’.

Michael Paton told Tribune Business that while it was “helpful” that the EU had dropped ‘low or no’ corporate and income tax rates as criteria for whether a nation was automatically considered a so-called ‘tax haven’, “the key” was now for the Bahamas to deliver on its commitments.

EU finance ministers, following their recent meeting in Malta, said the level of tax co-operation and information exchange with its 28 (soon to be 27) members would be a key determinant of whether countries end up on the ‘blacklist’ it is currently preparing.

As a result, Mr Paton, attorney and partner at the Lennox Paton law firm, said it was imperative for the Bahamas to agree bilateral automatic tax information exchange deals “in principle” at least with all EU member states before year-end.

“It’s definitely helpful,” he told Tribune Business of the EU’s changed ‘tax haven’ criteria, “but if we do not have in place the automatic exchange of information agreements, either in principle or agreed, by the time they’ve completed their review, I’d question whether or not we’d be seen as co-operative and not be on their list.

“In my view, a lot rides on us getting those 27 EU agreements done in principle or in place.”

Michael Halkitis, minister of state for finance, in unveiling legislation to give effect to automatic tax information exchange late last year, said the Bahamas had issued invitations to 43 countries to start negotiating bilateral treaties with this nation.

Among that number were most member of the EU and the Organisation for Economic Co-Operation and Development (OECD), the two groupings of developed countries that have been the Bahamas’ major nemesis and critics when it comes to tax transparency and information exchange.

Given that the OECD’s Global Forum has rated the Bahamas as “largely compliant” on its existing laws and tax information exchange mechanisms, Mr Paton said the Bahamas’ fate with the EU rested on co-operation and fulfilling its commitments under the Common Reporting Standard (CRS) - the global automatic tax information exchange standard.

“That’s why we need to get the 27 in place. That’s the key,” he added. The Bahamas has already signed an agreement with Japan to upgrade their existing ‘information upon request’ deal to an automatic one.

Mr Paton, though, said that despite signing the protocol to do so, the two nations have yet to reach a Competent Authority Agreement (CAA).

“We’ve done the symbolic part, but not the technical part,” he added.

The Bahamas and other international financial centres (IFCs) have been in the EU’s cross-hairs for some time, with the continent’s governing body having previously announced plans to publish a ‘blacklist’ of so-called ‘tax havens’ by year-end 2017.

The EU, in rating 81 different jurisdictions for their co-operation on tax matters last September, ‘red flagged’ the Bahamas and nine other countries - mainly its fellow IFCs - for having either no, or a zero rate, corporate income tax.

This, though, has now been dropped, seemingly after pressure from the UK worried about its IFC dependencies, plus European nations who themselves have ‘low tax’ regimes. A ‘zero’ tax rate will now only trigger a closer look at a jurisdiction’s taxation rules.

The Brussels-based EU Commission, though, also placed a ‘red flag’ against the Bahamas when it came to transparency and the exchange of tax information, although on the third and final criteria - the existence of a ring-fenced preferential tax regime - this nation received a clean bill of health.

The EU has so far sent requests to 92 countries, including the US, in a bid to assess practices that could be seen as enabling tax avoidance.