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Bahamas 'Behooved' To Eye Corporate Tax

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Bahamas has been urged to assess the feasibility of a corporate income tax without being forced into it by the Organisation for Economic Co-Operation and Development (OECD).

Tanya McCartney, the Bahamas Financial Services Board's (BFSB) chief executive, told Tribune Business that this nation needed to review corporate income tax and other reform options "outside" the OECD's Base Erosion and Profit Shifting (BEPS) initiative. And she emphasised that tax reform had to be analysed "in the broader economic context" beyond just the financial services sector, so that other industries and the economy as a whole benefited from whatever was implemented.

Ms McCartney spoke out amid concerns that compliance with the OECD's BEPS initiative may require the Bahamas to implement a low-rate tax on corporate (company) income, something that K P Turnquest, the deputy prime minister, conceded this nation "may have to look at".

"While it may not require us to, it may behoove us to," the BFSB chief executive replied, when asked whether the Bahamas was being forced to examine such a tax. "Outside of BEPS, we have to determine whether that's [a low-rate corporate income tax] something we need to do separate and apart from this initiative.

"Industry, for some time, has been working on a proposal for a review of our tax structure. We've shared our views with the Government, and they have the matter under review and consideration as to how to proceed with a review of our tax system."

Tribune Business last week detailed the potential dilemma facing the Bahamas as it seeks to meet a December deadline to state how it plans to comply with the OECD's initiative, which is intended to crack down on often-legal taxa avoidance schemes used by multinational companies.

The Bahamas has to adopt four out of '15 actions' to meet the minimum threshold for compliance. The four 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 is especially problematic for the Bahamas.

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.

"This is what we are still hoping for and advocating for as an industry," Ms McCartney told Tribune Business. "The review of the tax structure to determine how best to rationalise it, or consider whether some form of corporate tax is feasible; it may be an option.

"Outside of BEPS this has to be under active consideration. We ought to look at it. It may be an opportunity to review our existing Business License tax regime."

Chester Cooper, the PLP's deputy leader and Exuma MP, has also suggested that the Bahamas revise its Business License fee, which is levied on a company's gross turnover, as part of its strategy to achieve BEPS compliance.

Ms McCartney, meanwhile, acknowledged that tax reform could not focus on the benefits/disadvantages that would accrue to just one industry such as financial services.

"We need to look at it in the broader economic context, not just confined to financial services," she told Tribune Business. "We cannot consider it solely in the context of financial services. The preliminary work we have done in industry sought the broader views of other sectors.

"The next thing we want to see dialogue and broad-based discussion on is a review of our tax system. We'd love for that dialogue to commence. We believe that if we start that dialogue now it will be consistent with a proactive approach to reposition the economy as well as the sector."

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.

Ms McCartney, meanwhile, confirmed that BEPS and the Bahamas' position on it was "initially raised" with the Christie administration, but nothing was done and the matter has now passed to its successor to be dealt with.

Many are likely to have considered BEPS as having little relevance to the Bahamas, given that this nation has no corporate - or any form of - income tax, and the initiative is targeted more at institutional business and multinational companies. This country's financial services industry is focused largely on private wealth management and estate planning for individuals and families.

However, yesterday's 'Paradise Papers' revelations, based on leaked documents from the international financial centre (IFC) specialist law firm, Appleby, are likely to intensify pressure on the Bahamas and others to join 100 other nations in complying with BEPS.

Ms McCartney said BEPS was an initiative that has been "in train for a very long time", and she added: "The Bahamas has to be proactive in achieving global regulatory standards.

"Very often we find ourselves reacting and assessing compliance after the fact. It's important for us to get ahead of initiatives such as BEPS."

Concerns about being 'blacklisted', she explained, frequently distracted the Bahamian financial services industry from focusing on growth, innovation and service delivery - factors that would improve its competitiveness and ability to attract business.

Comments

Well_mudda_take_sic 1 month ago

Our elected governments no longer govern the Bahamas in the interests of the Bahamian people. We are now governed by sordid international agencies like the IMF, FATF, OECD, IDB, WTO, etc. that surreptitiously go about representing the hideous agendas of the powerful corporate interests of the developed countries. These international agencies have spent decades getting our politicians hooked on borrowing, growing the size and cost of our government and whatever else it takes to put their interests above the interests of the Bahamian people.

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licks2 1 month ago

What foolish nonsense coming from this DNA . . . if you don't follow those groups then you are either USA or Somalia. . .the two most non-affiliated nations on record! One super rich. . .the other dirt poor! There you have it!

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bogart 1 month ago

For a long time other nations have been trying to shake loose our offshore business and we comply like IBC changes. We pose unfair competition as we have no corporate or income tax as do our competitors. On a number of fronts a tax seem warrented but it must be coupled with success in stopping wasteful dollars, curruption, crime, accountability, transparency, freedom of information and create independent agencies like a Financial conduct Authority or Financial Services Agency like Britain in 2013. Other ways to attrsct and maintain clients like cleaning up Nassau, lowering crime, utility rates for clients and slso a nice decent financial office complex as ee have always been a major player with highly trained professionals.

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observer2 1 month ago

Like Turnquest, McCartney's comments on corporate income tax are unhelpful because they are vague and lack specific objectives to grow the economy. Investors will be alarmed and act accordingly by shifting their assets to a more regulatorily and fiscally certain jurisdiction. The PLP government had a similar approach with the implementation of VAT. Higher taxation (income tax) under the FNM will lead to further economic decline. Go to Freeport and you will see most businesses have already been shut down. Webshops and liquor outlets abound.

The FNM should look carefully at the tax reforms being undertaken in Argentina by the Macri administration for a road map. Argentina's objectives are clearly defined: "The aims of the reforms include reducing tax distortions, making the tax system more equitable, promoting investment and labour formality and reducing overall tax pressure. Achieving this last goal will be particularly tricky, considering that the government is at the same time trying to narrow the fiscal deficit to put the public finances on a stronger footing. By placing investment promotion at the centre of its tax proposals, the government hopes that a resultant increase in economic activity will produce a reform that is closer to revenue-neutral (Economist Intelligence Unit - Nov 6, 2017).

Argentina clearly wants to align its tax policy to be investment stimulative and not just to raise revenue (which was the only goal of for VAT in the Bahamas) and in the process it destroyed small businesses and caused inflation to spiral. "The centrepiece of the reform (in Argentina) is a series of tax cuts on companies intending to raise investment. Most importantly, the corporate income tax rate is to be reduced from 35% to 25%, as long as profits are reinvested. If they are not, a 10% tax on distribution of dividends will be applied. The government is also seeking to gradually reduce distortionary taxes, including a tax on bank debts and credits, along with provincial taxes such as the turnover tax and stamp duty."

One can only hope but in the mean prepare your capital exit plans. Like VAT, income tax and a floating Bahamian dollar (at 80 cents) maybe here sooner than you think.

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Dawes 1 month ago

We can always tell all foreign entities that we won't listen to them. Of course it would very quickly mean the end of the offshore industry being used by Western nationalities (this is already happening). By doing what is proposed there is a chance we can save some of the offshore industry. The days of people from wealthy nations wanting to put their money here to avoid tax in their home country are coming to an end, if we want to survive we need to provide exceptional service and estate planning advice. If not the industry will continue to dry up (think how many banks have closed or downsized in the past few decades).

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