By NEIL HARTNELL
Tribune Business Editor
THE Deputy Prime Minister yesterday said the Bahamas’ tax system must be reviewed following the European Union (EU) ‘blacklisting’, with the Government “praying” for a swift removal.
K P Turnquest told Tribune Business he was hopeful that the Bahamas may be removed from the nine-strong list of non-cooperative jurisdictions “in a very short period of time”, following what he described as “positive” talks with EU officials yesterday.
Shedding more light on the events that led to the Bahamas’ ‘blacklisting’, Mr Turnquest said the 28-nation EU had been seeking “specific words” that this nation did not supply in committing to address the bloc’s concerns.He added that the EU “may not have appreciated” how much progress the Bahamas had made in tackling the “deficiencies” it had identified, describing the ‘blacklisting’ as “an unfortunate interpretation of where we are”.
While emphasising that he did not want to “jump ahead” of government deliberations, Mr Turnquest said the Bahamas needed to review both its taxation and the use of International Business Companies (IBCs) and other structures to ensure they complied with this nation’s “international obligations”. Confirming that legislative reforms were likely “in the near term”, the Deputy Prime Minister declined to comment when asked by this newspaper whether the ‘review’ would likely lead to the introduction of a corporate income tax.
Many observers believe the EU’s ultimate goal is force the Bahamas to adopt such a tax, but when this was put to Mr Turnquest he replied: “Your words, not mine.”
Speaking after he and Brent Symonette, minister of financial services, met EU officials over the Bahamas’ ‘blacklisting’, the Deputy Prime Minister said: “We were well received. I think the meetings went well, and we pray for a very favourable result in a very short period of time.”
The Cabinet ministers, accompanied by senior officials, travelled to Europe on Sunday in a last-ditch bid to head off the EU’s planned action, which was leaked to the Reuters news agency last week in a likely bid to increase the pressure on the Bahamas to bow to Europe’s demands.
This effort was unsuccessful, although it left the Bahamian delegation positioned to begin immediate discussions on securing this nation’s de-listing. The EU justified the Bahamas’ ‘blacklisting’ by arguing it did not give a ‘high political level’ commitment to prevent its corporate vehicles and structures from being used for tax avoidance purposes.
The Deputy Prime Minister previously revealed that the Bahamas’ February 8 letter, committing to address the EU’s issues, was signed by acting Ministry of Finance financial secretary, Marlon Johnson. Yet he argued that the Europeans had subsequently ignored letters and communications, signed by himself, reaffirming the pledges given by the senior official.
In particular, the EU raised concerns over so-called ‘ring fencing’ and the existence of a preferential tax regime for non-resident entities. It also expressed unhappiness that Bahamian vehicles and structures could be used by multinational corporations to move, and book, profits and losses even if they had no physical presence - and conducted no substantial business - in this nation.
Mr Turnquest said EU officials present at yesterday’s meetings “did” provide an explanation for why his affirmation of the Bahamas’ commitment, subsequent to Mr Johnson’s letter, had seemingly been ignored. He declined to divulge details, though, saying he would “speak to that” when he returns to Nassau on Friday.
As for whether the Government failed to recognise the EU’s ‘ring fencing’ and ‘substance’ concerns, Mr Turnquest denied this and said it had “sent some clarifications” on the issue in response to these questions.
The EU, in a January 26, 2018, letter to the Bahamas, identified three “deficiencies” that it demanded be addressed before this nation would be regarded as ‘cooperative’ in the fight against tax avoidance.
These required the Bahamas to comply with the Organisation for Economic Co-Operation and Development’s (OECD) Common Reporting Standard (CRS) on automatic tax information exchange, plus join its Base Erosion and Profit Shifting (BEPS) Inclusive Framework and commit to meeting the ‘minimum standard’.
Messrs Turnquest and Symonette signed the Bahamas met the first two EU demands when they visited Europe pre-Christmas 2017 to sign CRS-related treaties and agreements. Legislation to give effect to these commitments was subsequently passed by Parliament, while the Government also gave commitments to join the BEPS initiative and meet the minimum standard.
The Bahamas thus seemingly addressed all three “deficiencies” identified, only for the EU to seemingly ‘circle back’ to the ‘ring fencing’ and substance concerns that were not listed in the same annex. There are also suspicions that the EU altered ‘the rules of the game’, given that it had previously said nations would have until year-end 2018 to implement measures addressing its concerns.
Mr Turnquest, though, denied that the EU had “changed the goal posts”. Admitting to choosing his words carefully, he said: “The timeline has not changed in terms of December.
“What can be said is that..... there could have been better clarity around some of the issues raised. They didn’t change the goal posts. They were looking for some specific words from us.”
Asked what this language was, Mr Turnquest replied: “It’s complicated. In some respects it is a bit of an unfortunate interpretation of where we are in terms of being put on this list of non-cooperative tax jurisdictions.
“They [the EU] may not have appreciated where we are in the process, which may have led to some assumptions that were not necessarily the facts of where we are at this time.”
Asked about the specific actions the Bahamas must now take to be de-listed, Mr Turnquest told Tribune Business that taxation, legal and regulatory reforms will likely be required,
“I don’t want to get ahead of consultations with Cabinet and policy decisions, but it’s fair to say we have to look at our tax system,” he said. “We have to look at how IBCs and other structures work within our international obligations and our obligations to be transparent partners.
“We will have to make some decisions and, potentially, some amendments within the near term.” Carl Bethel QC, the Attorney General, revealed to this newspaper last weekend that his office was completing the draft of a Bill to tackle the EU’s ‘ring-fencing’ and ‘economic substance’ concerns.
Mr Turnquest declined to be drawn on whether the Bahamas will have to implement a corporate income tax to address the EU’s concerns, but many observers believe the ‘writing is on the wall’ on this issue.
Paul Moss, Dominion Management Services’ president, and others have argued that introducing a low-rate corporate tax would both enable the Bahamas to shed the ‘tax haven’ label and reposition its financial services industry for growth and new business opportunities.
They believe it would pave the way for the Bahamas to enter double taxation agreements and various investment treaties, enabling it to attract multi-million dollar capital flows and better penetrate the corporate market.
Tanya McCartney, the Bahamas Financial Services Board’s (BFSB) chief executive, has previously told Tribune Business that the Bahamas needs to study corporate income tax’s introduction.
And the external pressure is not originating solely from the EU. With the Government planning to make the Bahamas a full World Trade Organisation (WTO) member by end-2019, a corporate income tax is one of the options for replacing the revenue lost by Customs duty eliminations and reductions.
The International Monetary Fund (IMF) said as much in its Article IV consultation last year, urging the Bahamas to implement a low-rate corporate income tax.
The EU’s ‘blacklisting’ initiative stems from a belief that European citizens and companies are siphoning away taxable income to low or ‘no tax’ jurisdictions such as the Bahamas and other international financial centres (IFCs), depriving their home countries of much-needed tax revenue.
However, many in the Bahamian financial services industry believe the real goal is to undermine this nation’s competitiveness and drive it out of the financial services business.