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Corporate Tax Removal Paves Way For 10-Year Financial Sector 'Molding'

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Bahamas can "mould the financial services industry it wants for the next 10 years" after dumping corporate taxation from a key Bill, a former Cabinet Minister said yesterday.

Ryan Pinder, ex-minister of financial services, told Tribune Business that stripping efforts to comply with the European Union's (EU) 'ring fencing' demands from the Multinational Entities Financial Reporting Bill will enable the Bahamas to "attract the type of business we want to attract".

Describing the changes to the Bill, which was tabled in the House of Assembly yesterday, as "make or break" for the financial services industry, Mr Pinder praised the Minnis administration for taking the sector's "unanimous" advice to deal with the EU and Organisation for Economic Co-Operation and Development's (OECD) demands in separate legislation. Mr Pinder, who co-led the industry 'working group' on the Bill, said: "I'll tell you the feedback we received from industry was a unanimous recommendation that these items [EU and OECD] be dealt with separately, and not entwined, in this legislation.

"It's now an opportunity for us to focus on what our value proposition is going forward, and incorporate that into the regime and legislation we will have to put in place to address 'ring fencing' and economic substance.

"These are opportunities to chart the course for the next 10 years, figure out where the industry is and where we are going, and look at the elements of the economic substance requirements to attract new business to this jurisdiction."

The now-Graham, Thompson & Co attorney and partner reiterated that the Bahamas could not afford to rush any decision on corporate taxation, as "without proper thought and strategy" the Bahamas will "lose the opportunity and run the risk of throwing the baby out with the bath water".

"Now we have to work hard. We're under a timeframe," Mr Pinder told Tribune Business. "We now have an opportunity to mould the industry to attract the type of business we want to attract, and attract them to the jurisdiction. This was really a change that was make or break for the industry."

K P Turnquest, deputy prime minister and minister of finance, yesterday confirmed that the Government had amended the Multinational Entities Financial Reporting Bill in response to industry feedback.

"That is an industry suggestion that we have to deal with 'ring fencing' and economic substance in a separate Bill," he said. "I think they don't want to complicate the Bill, it follows the [OECD] model law and these things are very technical.

"As we saw with our conversations with the EU, they are very particular with the language we use. We thought it best to deal with the matter [of the OECD and EU] as separate issues."

Mr Pinder, meanwhile, described the Multinational Entities Financial Reporting Bill as "materially different" from its initial version, and said "isolating" the OECD's Base Erosion and Profit Shifting (BEPS) initiative from the EU's demands was "the right way to do it".

"You deal with it in isolation," he added. "They're material to industry, send shock waves through the industry, and how you approach them is determinant on the future of the industry and how it looks going forward."

Tribune Business revealed last week that the Government had dumped 'ring fencing' and corporate taxation from the latest version of the Bill.

The EU and OECD initiatives, while linked and attempting to combat tax avoidance, are dealing with separate issues, and the financial services industry had urged the Government to deal with them via standalone legislation.

The Multinational Entities Financial Reporting Bill's initial draft sought to tackle BEPS and the EU's 'ring fencing' mandate in the law, but the latest version now completely removes the section that dealt with the latter.

Apart from stripping out the clause that eliminated 'ring fencing', the adjustments also dump the 'schedule' that allowed the Minister of Finance the ability to impose corporate taxation on a wide variety of financial services products - ranging from International Business Companies (IBCs) to foundations, Executive Entities and Investment Condominiums (ICONs).

Many financial services industry executives and clients will likely be relieved that corporate taxation has been dumped, at least for the moment, given that its potential introduction had caused tremendous uncertainty - especially given that it seemingly provided for implementation 'at the stroke of a pen', although this was later refuted by the Deputy Prime Minister.

The Bahamas now has to deal with the EU's demand to eliminate 'ring fencing', or preferential tax regimes for non-resident entities and foreign investors, and ensure companies do 'real business' and have a physical presence in this jurisdiction, by December 31, 2018.

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