The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The financial services industry was yesterday said to be in the “initial stages” of determining whether the Bahamas’ ‘no tax’ model and “closed Bar” provide the best platform for ensuring its survival.

Tanya McCartney, the Bahamas Financial Services Board’s (BFSB) chief executive, said this nation needed to assess whether its 57 year-old taxation system was best suited to “the changed international operating environment” in which the sector found itself.

And it also had to decide whether the restrictions on allowing foreign attorneys to practice in the Bahamas “serves us best as an international financial centre”, Ms McCartney told the Bahamas Business Outlook conference.

She identified both issues as key challenges and impediments to re-positioning the Bahamian financial services industry to remain viable, and thrive, in the new global regulatory environment.

Recalling the 1960 Parliamentary resolution that imposed the ‘no income and capital gains taxes’ platform, Ms McCartney effectively queried whether it was still an appropriate platform in an era of increased global demands for transparency and tax information exchange.

“Can we continue to take that position?” she asked of the ‘no tax’ platform, questioning whether “immediate action needs to be taken with respect to our tax structure”.

Ms McCartney continued: “We have been engaged with Cabinet and the Government, and even asked to proceed with dialogue to bring forward policy proposals and positions with regard to whether that’s a viable position moving forward.

“We are in the initial stages of consulting and collaborating with a firm to review our tax structure, and make recommendations to the Government as to what is needed to put us on a proper footing with taxation for the viability of the financial sector in the long-term.”

The BFSB chief executive implied that the focus of such a review would be whether a ‘low rate’ corporate tax would enable the Bahamas to enter into ‘double taxation’ and bilateral investment treaties with other countries.

And, in turn, whether such a tax structure and treaties would attract companies to establish a physical presence in the Bahamas “with mind and management residing” here.

Several financial services practitioners, such as Dominion Management principal, Paul Moss, have long argued that the Bahamas should switch from a ‘no tax’ to a ‘low tax’ model in terms of income and corporate taxes.

They believe that such a move will enable the Bahamas to shed the ‘tax haven’ image and give it extra legitimacy, while also helping to encourage high net worth individuals to follow their assets here and make this nation their primary domicile.

A ‘low tax’ model would also open up the possibility of entering into ‘double tax’ treaties, a move that could encourage more businesses to establish a presence in the Bahamas, as any profits they repatriated home would only be taxed once - at this nation’s lower rate.

Ms McCartney, meanwhile, said the Bahamas also needed to closely examine another long-held policy position, that of the restrictions on specialist foreign attorneys and law firms being allowed to practice from this nation.

“I’m an attorney, but I need to say it,” the BFSB chief executive said. “We need to see if the ‘closed Bar’ serves us best as an international financial centre.”

Ms McCartney said rival international financial centres (IFCs), such as the Cayman Islands, Bermuda and the British Virgin Islands (BVI), had all opened up their legal professions to joint ventures with foreign law firms, and allowed specialist financial services practitioners to operate from their jurisdictions.

Pointing out that much of the business sent to IFCs came via “international referral networks”, and key intermediaries (attorneys and accountants) who dealt with providers they knew, Ms McCartney implied that the Bahamas was losing out due to current policy restrictions.

“We need to look at opportunities for the continued liberalisation of the Bar, confined to areas of financial services we need to provide, and with the caveat of uplifting our Bahamian talent and building capacity for our Bahamian professionals,” she said.

‘Liberalisation’ is a topic that divides Bahamas Bar Association members whenever it is raised, as occurred when Hope Strachan, minister of financial services, last year made the same arguments as Ms McCartney.

Senior attorneys and financial services specialists, such as Brian Moree QC and Bryan Glinton, have supported the ‘controlled liberalisation’ suggested by Ms McCartney, whereas others, including current Bar president, Elsworth Johnson, have rejected the idea.

Identifying other obstacles to the financial services industry’s viability and growth, Ms McCartney said they included the Bahamas’ continually slipping ‘ease of doing business’, and the need for a “more open minded” Immigration policy and approach.

Pointing also to the dangers posed by global ‘de-risking’ trends, the BFSB chief executive added: “We’ve had to look at how we can reduce the risk profile of the Bahamas as a jurisdiction to maintain and secure correspondent banking relationships.”

Ms McCartney also acknowledged the Bahamas’ issues in implementing solutions to long-known, widely understood problems.

“As Bahamians, we can acknowledge that sometimes the challenge comes with execution,” she said. “We know what needs to happen; the challenge is getting it done.”

Ms McCartney also urged Bahamians to change their “mindset” towards the financial services industry, and give it the same treatment and standing as they applied to tourism.

Calling on the country to adopt the same slogan, she said: “Financial services is everyone’s business. We’ve done a great job creating how tourism is everyone’s business, but so is financial services. The reality is that the entire gamut of our society benefits from financial services.”

The BFSB chief executive called for the same policy incentives and focus devoted to tourism to be extended to financial services, adding: “Together, we can break the barriers that threaten the success of this sector.”

Ms McCartney said the financial services industry, which many believe could generate up to 30 per cent of GDP, “underpins” both the wider economy and the Bahamian middle class.

Recalling the results from an Association of International Banks and Trusts (AIBT) workforce survey, Ms McCartney said the sector’s average salary was $92,000, with Bahamians accounting for 85 per cent of employees.

“We must chart a new course to buttress the economy, protect those who work in financial services and those who benefit from it,” she added.

“While the prognosis may appear uncertain or dire to some, there are many of us in the industry who see opportunities in the face of challenges.”