By NEIL HARTNELL
Tribune Business Editor
The Bahamas was yesterday urged to “leverage” the European Union’s (EU) ‘blacklisting’ and reposition itself as an international business centre based on ‘physical presence’.
Tanya McCartney, the Bahamas Financial Services Board’s (BFSB) chief executive, told Tribune Business this nation needed to turn challenge into “opportunity” by adjusting its economic model to attract multinational companies to do ‘real business’ in this jurisdiction.
Emphasising that the BFSB would continue to act as industry advocate, rather than as a ‘watchdog’, with government, Ms McCartney said the Bahamas would likely enjoy “broad economic benefits” in terms of faster growth and job creation if international firms established physical operations here.
She added that the EU ‘blacklisting’ would also give greater impetus to tax reform discussions, especially the potential introduction of a corporate income tax, which the financial services industry had been seeking government talks on “for decades”.
Ms McCartney, though, reiterated that tax reform talks could not take place in isolation. She added that the potential impact on all sectors of the economy must be taken into account, especially given the upcoming World Trade Organisation (WTO) accession process and need to replace lost government revenues as import tariffs are eliminated/reduced.
“Even in these unfortunate circumstances,” she told Tribune Business, referring to the EU’s action, “from where I sit I see some opportunities for us to address matters that industry has seen as critical for some time now to move our industry forward.
“We’re going to work with the Government to leverage the opportunities in this current circumstance. We want the Bahamas to be an international business centre, where multinationals find a home and establish a business presence.
“That’s good for the overall economy. There could be broad economic benefits if we have a discussion, and take an approach that meets international obligations and puts us in a position to attract international business to the jurisdiction.”
Ms McCartney’s comments echo a growing body of opinion that believes the Bahamas must focus on the ‘bigger picture’ and its long-term economic future, rather than simply react to the EU and seek to escape its ‘blacklist’ in the shortest possible time.
While that is important, many observers - both inside and outside the financial services industry - believe the Bahamas also needs to exploit this challenge for its own good by restructuring its economic model in a way that positions it for greater economic growth and gets beyond international regulatory initiatives.
A key focus will be attracting the financial services industry’s high net worth clients, and multinational companies and their affiliates, to select the Bahamas as their primary domicile for all activities.
Encouraging high net worth clients to follow their assets to the Bahamas would potentially minimise ‘home country’ tax issues, and lead to the creation of ‘family offices’ and other products, boosting not only financial services business but also activity throughout the economy.
Enticing companies to establish a physical presence in the Bahamas, and conduct real business from here, would have a similar effect, and further aid job creation and local employment - while also addressing the EU’s ‘economic substance’ concerns that were used to justify this nation’s ‘blacklisting’.
Yet to attract such corporate and high net worth observers, reposition the economy and balance this with meeting EU/international demands, tax reform - and especially the introduction of a low-rate corporate income tax - is increasingly likely.
The WTO accession makes tax reform in some fashion virtually inevitable, and Ms McCartney reiterated her belief that the Government “has to look” at corporate income tax seriously from both the financial services and broader economy’s perspective.
“The Government has to look at this question of corporate income tax,” she told Tribune Business. “Industry facilitated some benchmarking around what other IFCs (international financial centres) have done in this regard.
“We have submitted that to the Government, it has been reviewed, and I anticipate we will begin the dialogue in earnest as to what policy position the Government takes in relation to corporate tax.
“The Government has to chart a policy that takes into account global initiatives, the business impact and what comparable IFCs have done in that regard. I believe the dialogue will commence in earnest shortly.”
K P Turnquest, Deputy Prime Minister, said the EU had noted the “challenges” the Bahamas faces in meeting its demands in the absence of a corporate income tax. And the Organisation for Economic Co-Operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) initiative, compliance with which is being used by the EU to determine if countries should be ‘blacklisted’, seems to push this nation towards corporate income tax implementation.
For the Bahamas, in committing to meet the BEPS ‘minimum standard’, has agreed to adhere to its ‘no harmful tax practices’ criteria. Yet the OECD regards ‘no’ corporate tax, or a rate of less than 10 per cent, as a ‘harmful tax practice’ thereby creating the dilemma for the Bahamas.
Financial sector executives such as Paul Moss, Dominion Management Services’ president, have repeatedly suggested that introducing a low-rate corporate income tax would enable the Bahamas to shed its ‘tax haven’ label and reposition the industry through paving the way to enter into double taxation and bilateral investment treaties with other countries.
This, in turn, could help the Bahamas attract overseas companies to establish a physical presence here, given that such entities would be amenable to paying taxes here in return for a reduced bill at home when repatriating profits.
Ms McCartney said the EU’s demands would likely provide renewed impetus, and spur, discussions on the corporate income tax issue. “Some of what has been asked of us by the EU is what industry has agitated for real, meaningful dialogue on for some time,” she told Tribune Business.
“It’s something we’ve asked successive governments to look at for decades. It just happens that the EU has set out this criteria, but we’ve said we need to look at this for some time now.”
The BFSB chief executive, though, emphasised that corporate income tax needed to be discussed in the broader context of the whole Bahamian economy and WTO accession - not just financial services.
“This is bigger than the financial services industry. It’s not just about financial services,” she added.
The International Monetary Fund (IMF) last year recommended that the Bahamas introduce a low-rate corporate tax as a means of replacing revenues lost to WTO-induced import tariff eliminations and reductions.
But, while an income tax was among previous revenue reform options, the last Christie government rejected it in favour of VAT due to the fact it was ‘alien’ to Bahamian culture and would have required the creation of a completely new collections bureaucracy together with increased costs.