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Dpm: We Must Review Taxation After ‘Blacklist’

Deputy Prime Minister K Peter Turnquest.

Deputy Prime Minister K Peter Turnquest.

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

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.

Comments

observer2 2 years, 3 months ago

The Bahamas will constantly be plagued with black listing because the country is only halfheartedly implementing fiscal and tax reforms to meet the bare minimum of a moving target.

Eg. we implimented VAT to get rid of customs duties and business licence fees to enhance free trade. We halfheartedly implemented a low VAT and left customs duties and business license fees in place. Further burdening the private sector with burdensome tax bills.

KP simply signing a letter is not going to "do the trick". Never has and never will.

As long as government follows the advice of offshore banks, trusts, foundations, lawyers, special interest, high net-worth residents and tax accountants it will never meet the evolving requirements of the global trading blocks (EU, Nafta, TTP etc.). Why? Because the Bahamas has no income tax, no corporate tax, no individual tax, no capital gains tax, no interest income tax, no dividend tax, no inheritance tax and no beneficial owner transfer taxes. Simply moving to the Bahamas can save a corporation or individual billions in taxes over decades. That's harmful to the tax base of developed countries. No wonder they are upset.

IBCs can be set up with nominee shareholders, directors, officers with the sole purpose of moving money and assets around the world without the disclosure of true beneficial interest.

Registered agents set up these corporations with no fiduciary duty (agency responsibilities only) other than knowing the customer. Knowing your customer is only the starting point. In developed countries corporations must file financial statements with the registry and prepare annual tax returns. No such requirement in the Bahamas.

Now that we appear to be embracing Bitcoin and webshops (quasi financial services) it only pours oil on the fire. In the meanwhile the international banks are bailing out of commercial banking on the jokey pretext of moving their platforms onto the web. Anyword on ACH? Every tried moving money from one Bahamian bank to another electronically? Good luck with that. Meanwhile there is silence from the government and the regulator. Sometime you can't even make a deposit in the bank...where is the regulator in all this?

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Sickened 2 years, 3 months ago

"Registered agents set up these corporations with no fiduciary duty (agency responsibilities only) other than knowing the customer. Knowing your customer is only the starting point. In developed countries corporations must file financial statements with the registry and prepare annual tax returns. No such requirement in the Bahamas."

Ah, wrong! Delaware for example is much, much worse than here. Speaking from experience, registered agents in Delaware don't know how much money is in a company, and they don't care. They don't know who the shareholder of the company is (only who asked for it to be incorporated) and they don't care. They don't know who the controlling parties of the company are, and they don't care. Many development countries are MUCH more slack than us... and they don't care! They just don't want us playing on their pitch!!!

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Porcupine 2 years, 3 months ago

So, let's talk about the numbers. Can the Minister of Finance give us an idea of how much money could be raised for the Treasury by implementing a nominal 7% or 10% corporate tax rate? Bahamians should be cheering this on, as then the Government of The Bahamas could immediately eliminate Duty, reducing the cost of living for ALL Bahamians. We could start paying down our deficit, saving hundreds of millions in interest payments alone. Who can possibly say that this is not a fair way of helping out the mass of struggling Bahamians? Come business community. Let's hear it.

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Gotoutintime 2 years, 3 months ago

Too reasonable Porcupine---It'll never happen!!

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happyfly 2 years, 3 months ago

Why the .... should we introduce new taxes because some beaurocrat think-tank in Europe thinks we should. You can guarantee that if the Bahamas introduces a nominal 5% tax on corporate profits, the OECD will come blacklisting us again next year claiming that 5% isn't high enough. Then when we comply and raise ours, they will raise their taxes on their own people and then they will blacklist us again until we have to raise ours again.

I get that they needed to shore up the secret funding of terrorists and curb the laundering of drug money but now they are saying us not having taxes is 'harmful'. Harmful to what ? Harmful to the europeans having 8 weeks paid vacation a year ? Harmful to those governments bailing out big banks after they fleeced the entire world of everyone's life savings? Harmful to people in Europe paying less for a Banana than we do in the islands where they are grown ?

I'll tell you what will be harmful. The FNM adding a new tax and miss-managing the funds. Them getting voted out and the PLP coming in and adding new taxes and miss-managing the funds. Pretty soon then we can all move to Europe and apply for benefits for all the taxes we helped them raise, because there won't be anything at all going on around here.

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OldFort2012 2 years, 3 months ago

To all the people who think introducing a corporation tax is "beneficial".....yes, it would be beneficial in terms of revenue but it would be almost impossible to introduce in practice.

That is because a corporation tax requires audited accounts. Auditing costs money. Take a small business in the Bahamas...a fish fry. The owner would need to start keeping accounts, saving all invoices and paying an annual audit fee to his accountant. Can we see this happening? Do we think the average Bahamian business is ready for this?

Even if we got over this first step, someone (presumably the Ministry of Finance) would need to keep track of and audit the audited accounts. Otherwise everyone will just cheat like hell and report no income or use 1000 different ways to minimize liabilities. Are we saying that we have the human resources to do that? To me, knowing our system & resources, that is all science fiction.

Maybe that is the answer...introduce it and not police it. I don't think we could even if we wanted to.

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newcitizen 2 years, 3 months ago

Just because it would be challenging you think that it shouldn't be done? So back in the day you would have argued that we should stick with the horse and buggy because people would need to learn how to drive cars?

At what point do we need to move forward? The world is passing the Bahamas by.

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Sickened 2 years, 3 months ago

More taxes isn't moving forward; it's falling on your knees and obeying a master who can't keep his own house in order. Anyone with a brain cell think that the U.S. or European tax system is fair and efficient?

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newcitizen 2 years, 3 months ago

They are both better and more efficient than the Bahamian tax system. No one said more taxes, they said to modernize the tax system.

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Sickened 2 years, 3 months ago

Do you know how many pages the U.S. tax code is? Over 70,000 pages. Not efficient. The collection of tax - other than payroll tax is also not efficient. Ever had to complete a US tax return? Not easy or efficient. Most Bahamians never even have to think about paying tax in the Bahamas. The importers do most of it for us. Bahamians usually only deal with Road traffic once a year.

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OldFort2012 2 years, 3 months ago

No, I am not saying it SHOULDN'T be done. I am saying it CAN'T be done. Not with the human resources available to the Ministry of Finance.

I would not be surprised if there were more IBCs alone than the adult population of the Bahamas. Anyone can pass a few laws, set up a system and then...? Then what? Who is going to police it and enforce it? Our MoF? Our police? Our Courts? It is never going to happen.

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joeblow 2 years, 3 months ago

In reality when you increase the cost of doing business you might see increased unemployment, higher cost of goods and services etc. The increased cost of doing business will trickle down!

If the category of businesses taxed is confined to those doing $10 million or more with a reasonable tax rate it gives small and medium sized businesses opportunities for growth. Otherwise it will stagnate the economy, not grow it!

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Porcupine 2 years, 3 months ago

This isn't about a cost of doing business. I don't mean to be petty, but a basic accounting course would help you understand this. What stagnates the economy is low productivity, ie. people who could give a rat's ass about their job, theft, corruption, and if we were focused on the things that truly and honestly stagnate the economy we would have a sober, mature conversation about the epidemic of gambling and the web shops. There is nothing that stagnates the economy more than the web shops. Repeat, there is nothing that stagnates the economy more than the web shops. The government needs money to function. The question is; where does that money come from? Presently, the trend is for the working class and poor to bear the brunt of this taxation, such as duty, VAT, stamp tax, car licensing fees, NIB, etc. With each concession given to a business, more money MUST come from the working class to pay for government. Don't call this a Christian country while supporting a lower standard of living for most of us while allowing the richest few to get much richer on the backs of the rest of us. We need to shift the argument from the nonsense taught in business schools to the real truths which affect us, most all of us daily. I am both a businessperson and a human being. Our world is skewed towards giving business all the breaks, while driving the working person further in debt and less secure than 20 years ago. You fine with this Joeblow?

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Sickened 2 years, 3 months ago

I'll repeat your repeat because it needs repeating... I repeat, there is nothing that stagnates the economy more than the web shops.

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joeblow 2 years, 3 months ago

With all due respect, companies are in business to make money. When profits are decreased because of taxes and other onerous burdens placed by governments then the business is forced to consider how to increase their profits and reduce operational costs. One way to trim the fat is to lay off unnecessary (so called redundant) workers. That increases unemployment. More unemployed people in an economy means less money is being spent in that economy as a result the local economy contracts. Government is forced to spend more on social programs etc. This is basic stuff!

Web shops are a major problem, I agree, but that is not the core discussion at this time! Legitimate business will be adversely affected by corporate taxes!

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