Deputy Prime Minister K Peter Turnquest.
By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
The Deputy Prime Minister yesterday revealed the Bahamas “may have to look at” implementing a low-rate corporate income tax, as global regulatory pressures force “hard decisions” upon it.
K P Turnquest, while emphasising that such a move was a long way off, agreed that compliance with the OECD’s Base Erosion and Profit Sharing (BEPS) initiative presented a dilemma for the Bahamas.
This nation has to inform the Organisation for Economic Co-Operation and Development (OECD) by next month how it plans to comply with BEPS, and adopt four out of ‘15 actions’ to meet the minimum threshold for compliance.
The four standards that the Bahamas will likely select, according to a Bahamas Financial Services Board (BFSB) statement, are:
(Action 5): Countering Harmful Tax Practices; (Action 6): Treaty Shopping; (Action 13) Transfer Pricing Documentation and Country-by-Country Reporting; and (Action 14) Dispute Resolution.
However, financial services industry sources told Tribune Business that compliance with Action 5 was especially problematic for the Bahamas, given that BEPS is designed to counter tax avoidance by large multinational companies.
The OECD considers a corporate tax rate of 10 per cent or less to be a ‘harmful tax practice’, but the Bahamas - with no income taxes of any kind - has an effective corporate tax rate of ‘zero’ because it simply does not have this system.
As a result, and with the OECD and its G-20 and European Union (EU) members threatening ‘blacklistings’, Tribune Business understands there is significant concern over how the Bahamas will comply and whether it will be forced to adopt a corporate income tax.
“When we start talking about taxation people get their knickers in a knot, so I’m a little concerned about making a specific statement in that regard,” Mr Turnquest replied, when Tribune Business put the BEPS and corporate income tax issue to him.
“But it’s reasonable to assume we’re going to have to make some hard decisions in the future.” Mr Turnquest suggested the Bahamas could look at Cyprus as a model to follow, with that island nation having adopted a 10 per cent flat-rate corporate income tax.
“If they’re able to get away with a flat 10 per cent, maybe it’s something we have to look at, but until we do the research I cannot say.”
Some financial services executives, including Paul Moss, principal of Dominion Management Services, have long argued that the Bahamas should introduce a low-rate corporate income tax, as this would enable the country to shed its ‘tax haven’ image and break into the market for investment and double taxation treaties.
And the International Monetary Fund (IMF), in its recent Article IV assessment, suggested that the Bahamas introduce a low-rate income tax over the medium term as means to replace revenue that will be lost as it lowers/eliminates import tariffs to comply with international trade rules.
Others, though, have argued that the implementation of such a tax must be assessed in terms of its impact on the wider Bahamian economy, and that this nation should do it on its own accord - not be forced into it by the OECD and others.
Mr Turnquest agreed, saying that any discussion on tax reform, whether involving corporate tax or other levies, had to be informed by analysis on the “macroeconomic effects” and other parameters.
The BEPS initiative, which aims to ensure that the profits of multinational companies are taxed in the country where they are generated, could mean that time is running out for the Bahamas to do that.
A Bahamas Financial Services Board (BFSB) release, drawing on the OECD’s own language, explained that multinational companies were using often-legitimate tax avoidance strategies to “exploit gaps and mismatches” between different countries’ tax rules and “artificially shift profits” to low or ‘no tax’ jurisdictions. This enables them to minimise their tax exposure by paying a lower rate.
More than 100 countries are working together to implement ‘15 actions’ to combat BEPS, which is viewed as depriving developing countries of much-needed tax revenue, while also undermining confidence and compliance with national tax systems.
Mr Turnquest, meanwhile, accused the former Christie administration of “dropping the ball” on the Bahamas’ compliance with the BEPS initiative. He added that he was in possession of a document showing the Bahamas was “actually invited” to be a member of the committee dealing with the issue, but never took the offer up.
“It’s like any number of issues when we come to financial services,” he told Tribune Business. “We continue to be led instead of getting out in front, participating in international fora so we know what’s coming down the pipeline and get ahead of it.
“We’re always under the pressure to respond to blacklists, and we know the OECD has given some indication they’re reviewing what they consider non-cooperative jurisdictions with reference to another possible blacklisting.
“We don’t have any reason to believe we’re being considered for another list but we certainly intend to get ahead of any initiative they have, and to the extent compliance with the minimum standards doesn’t affect our core business base, we certainly want to signal co-operation and commitment to international best practices and what is considered standard worldwide.”
Mr Turnquest said the Bahamas would inform the OECD of its plans to comply with four of the ‘15 actions’, adding: “We’re committed to complying with those four because the rest of it doesn’t apply to us.
“We can’t do what we don’t have. We can’t do more than we can do by policy and law.”
Comments
Well_mudda_take_sic 6 years, 5 months ago
VAT has crippled us and a corporate tax, no matter how small, will be the coup de grace.
B_I_D___ 6 years, 5 months ago
We pay a 6 figure sum in business license fees each year...but let's not call that a TAX!!
concerned799 6 years, 5 months ago
Does the OECD run the Bahamas or do Bahamians?
It should be clear to all, that the blacklisting will NEVER STOP. It doesn't matter how many past demands you comply with!
Economist 6 years, 5 months ago
Finally. However the tax should not cut in until Earnings before Taxes exceeds 10 Million.
The Bahamas can then enter into Double Taxation Treaties and US corporations, for example, who make a profit here and currently don't pay any tax still pay their full 35% to Uncle Sam would, with a Double Taxation Treaty, then pay 10% to The Bahamas and the remaining 25% to Uncle Sam.
This is a very positive step in The Bahamas collecting millions that the other governments are currently getting.
ThisIsOurs 6 years, 5 months ago
I guess you slept through the billion dollars collected in VAT that disappeared.
I'm looking in the crystal ball and I see all kinds of nifty programs they'll start to waste every penny collected...starting with a raise for MPs, put first things first.
Dawes 6 years, 5 months ago
This has needed to happen for a long time. Though it will only work if they get rid of business license. Corporate Tax works as it would be on the companies profit, business license sometimes helps to ensure a company makes a loss as it must be paid no matter how the company did. In addition with double taxation treaties companies foreign based companies would not be at a disadvantage and it may even encourage them to be based here.
John 6 years, 5 months ago
what you are saying is reverse of the matter.
B_I_D___ 6 years, 5 months ago
You are sadly misinformed...business license fees are factored on your gross revenue, whether turn a profit or not...if I bring in $3 million a year, but my cost of doing business was $4 mil, I’m still paying the business license fee on that 3 mil figure, even though I lost money that year. Would need to run some numbers, but as it stands now, since we are barely breaking even, I’d take a corporate tax on ‘profits’ vs gross revenue.
John 6 years, 5 months ago
$6.00 for a pound of lamb shoulder. $18.00 for a gallon of orange juice or milk. What the hell...go head Turnquest finish kill us
John 6 years, 5 months ago
"A corporate tax, also called corporation tax or company tax, is a direct tax imposed by a jurisdiction on the income or capital of corporations or analogous legal entities. Many countries impose such taxes at the national level, and a similar tax may be imposed at state or local levels. The taxes may also be referred to as income tax or capital tax. Partnerships are generally not taxed at the entity level. A country's corporate tax may apply to:
corporations incorporated in the country, corporations doing business in the country on income from that country, foreign corporations who have a permanent establishment in the country, or corporations deemed to be resident for tax purposes in the country. Company income subject to tax is often determined much like taxable income for individual taxpayers. Generally, the tax is imposed on net profits. In some jurisdictions, rules for taxing companies may differ significantly from rules for taxing individuals. Certain corporate acts, like reorganizations, may not be taxed. Some types of entities may be exempt from tax.
Countries may tax corporations on its net profit and may also tax shareholders when the corporation pays a dividend. Where dividends are taxed, a corporation may be required to withhold tax before the dividend is distributed."
So what is the difference this and the current Business Licence Tax?
bogart 6 years, 5 months ago
When banks make profits in the Bahamas dont thry have to pay Tax on Profits as it is remitted to the Headoffice of the Banks located in Barbados etc .....so ?.. What should happen is that locals should have a different level. Incentives and credits should also be included in the mix to envourage and offset scaring the bejesus out of the local business community....?already suffering from the successful exttaction of 1.3 billoon dollars of disposable income and some 42 million placed in someplace where it cannot be found six months after elections ... Instead of corporate why not consider income tax where the wealthy can shoulder some taxes that the majority of the poor people have been shouldering equally as is in all the countries carrying VAT and income tax as was noted to be inevitable direction in discussions prior to VAT....
croberts6969 6 years, 5 months ago
Business licence fees are based on revenues not income. But if they did introduce a corporate income tax they would certainly have to abolish business licence fees.
ohdrap4 6 years, 5 months ago
them folks charge vat on duty.
they will keep both.
bogart 6 years, 5 months ago
Thanks croberts6969. I was getting to the personal income tax where salaries are known to NIB but there were discussion that owners of businesses would not take a salary or minimize it to avoid paying taxes that would be due. Individuals would be exempt on the first 25k pay a 1.5 % on next ? Etc with credits activities like donations etc
observer2 6 years, 5 months ago
Based on how the Minister has phrased the corporate tax communication I would assume that by the end of FNM's current term in office some form of corporate/income tax will have been implemented.
The communication is just the first shock to soften up the general public. Similar to how the PLP implimented VAT and legalized gambling.
Bahamian citizens, permanent residents and foreigners are therefore on notice to get their affairs in order.
Some considerations and questions left wide open by the Minister during his most unhelpful communication.
Are we talking a corporate tax or an income tax. There is a big difference as a corporate tax does not impact individuals.
Are we talking a corporate tax on Bahamian companies resident for exchange control purposes or does it include non resident companies which are used mostly by foreigners and residence e.g. IBCs.
Are we talking a corporate tax on domestic earnings (local businesses) or will it include international businesses (or world wide income).
Are we talking a taxation based on underlying beneficial ownership (citizenship tax) or on the "place of doing business" or residency? How do you determine residency for tax purposes. Eg. In the US if you are a non resident and you are in the US for less than 120 days then you are not deemed to be resident for tax purposes. The US taxes on world wide income.
Will the corporate tax include passive financial income such as capital gains, interest income and dividends or will it be earned income from a trade. If it is from a trade does it only touch upon a trade performed in the Bahamas?
I can go on and on with many other queries. But to be safe we should assume that the government (as it did with VAT) will cast the widest net and then close it when the foreigners/non resident companies start to migrate to Cayman or the BVI (those that have not already done so) and the Bahamians start to scream.
We should also assume that the Business license fee will remain. So Bahamian business will be taxed on the top line (business license), on the bottom line (income tax) and on every transaction in between (VAT).
The Tribunes article probably has already been circulated to the Head Offices of many international companies that have IBCs subsidiaries in the Bahamas and I would assume they would start making contingent plans immediately.
While Bahamian will "consult" with the government and get into all sorts of arguments the foreigners will start to move now.
Well_mudda_take_sic 6 years, 5 months ago
All excellent points.
observer2 6 years, 5 months ago
Bahamians and residence with international businesses should also be concerned that the government will wish to tax world wide income. This is the only way to satisfy the OECD concern that international or multi jurisdictional firms are escaping taxes by being domiciled in the Bahamas. Billions of income and capital gains have been sheltered using IBCs.
This will require international IBCs to be audited, just like local companies, and their financial statements filed with Inland Revenue.
The major problem with the government implementing an income or corporate tax is a general lack of accountability (neither the FNM or the PLP are credible regimes). There has been no improvement in the well being of Bahamians since the implementation of $1 billion of VAT taxes. Indeed we so no improvement in government processes, controls, procedures or for that matter any bright ideas. All we here is the re-litigation of old matters such as gambling, citizenship and corruptions with no improvements in any of these areas.
Time to get out before its too too late.
Reality_Check 6 years, 5 months ago
Our pathetic Minister of Finance still does not understand that what we really need is a business environment free of government corruption and unnecessary red tape, and free of street crime, that is conducive to private sector job growth. The last thing we need is more taxes to grow an inefficient and unproductive government!
bogart 6 years, 5 months ago
Excellent observer2. The senior govt official comments have shaken the bejesus and rattled business confidence and with the track record of placing officials on governing Boards who oversee questionable issues but do little. No way should it have come to the need for public funds into the Bank of the Bahamas without heads rolling. No way should it have come after repeated complaints on 100% increases of Bank fees over a year that irate citizens should have to publictly hold protests in front of TV cameras.This is not the level of communications and understanding as coming from a mature financial centre towatds its clients, particularly one that aspires to be like Singapore.. There is just no protection for the customer. There should be an independent agency of bank supervision etc as exists in the UK among other changes. Businesses must be protected, Bahamians must be protected.
MonkeeDoo 6 years, 5 months ago
Cut the Civil Service in half or devalue the Bahamian dollar but stop talking about what you might have to do. Every time he opens his mouth he creates a contingent liability in the minds of business and people. D'Aguilar has already got Airbnb adding a caveat to their booking engine WARNING that additional fees & taxes "May" apply. !!! Imagine that ! So the booking to the Bahamas have ground to a halt. Who is going to buy something today that may cost x% more when you use it. Loose lips sink ships.
The_Oracle 6 years, 5 months ago
So did anyone really think we could screw our country beyond recognition and not eventually pay the price? seizing the assets of crooked politicians and Civil servants, Numbers bosses legitimized overnight etc would help but we don't seem to have the stomach for prosecuting them. In the end, the bill is due.
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