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Expert: Corporate Tax 'Is A Five-Year Project'

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A KPMG tax expert yesterday warned that a Bahamian corporate tax is "a five-year project", adding: "You can't rush it in nine months."

John Riva, head of tax for the accounting firm's 'Islands Group', told local financial services executives that the introduction of such taxation needed to be bound to "a vision" of what this nation wanted its financial services industry and economy "to look like in five to 10 years".

Addressing a breakfast seminar, Mr Riva said it was both unnecessary and impossible to property implement corporate taxation in the nine months before the Bahamas has to meet the European Union's (EU) anti-tax avoidance demands.

Emphasising that the EU was not requiring this of the Bahamas, the KPMG executive said such far-reaching tax reform needed to be accompanied by a proper analysis so that its full economic impact was understood prior to implementation.

"You cannot introduce corporate taxation unless you have a vision," Mr Riva warned. "You need to have a vision of what financial services, your economy, will look like in five to 10 years.

"You are not going to introduce a corporate tax in nine months. No one will make you ever do that..... If you are going to introduce corporate taxation, you do it for your long-term economic vision, map it out and understand the economic impact of doing so.

"You do not rush it in nine months. This is a five-year project so that businesses can manage their expectations and deal with it."

Mr Riva explained that Bahamian businesses would want absolute certainty on tax type, rate and timing among other details, as they would not want to enter long-term contracts pre-implementation that could suddenly be hit with corporate tax - a development that could "destroy cash flow" and other financial indicators.

The KPMG executive said corporate taxation and the EU's 'economic substance' demands were two distinct, separate issues, with the 28-nation bloc not requiring the Bahamas to implement such a levy to escape its 'blacklist'.

His assertion was backed earlier this week by Michael Paton, the Lennox Paton attorney and partner, who also told Tribune Business that a corporate tax is not necessary to appease the EU. He, though, suggested tax reform - likely involving some form of corporate taxation - will be required to remove the Bahamas from the crosshairs of future international regulatory initiatives.

Mr Riva's remarks, though, will likely intensify debate over the Government's proposal to pave the way for corporate taxation's introduction on a wide range of financial services products in a bid to address the EU's other concern, so-called 'ring fencing'.

This involves the existence of 'preferential' tax regimes for non-resident entities and foreign investors, which the proposed Multinational Entities Financial Reporting Bill aims to remove by permitting the Government to introduce corporate taxation on the likes of International Business Companies (IBCs) at 'the stroke of a pen'.

These provisions, contained in the Bill's 'second schedule', have already caused tremendous concern for the financial services industry and its clients because of the uncertainty they create - a natural disruptor for any market.

Mr Riva yesterday warned that corporate taxation was extremely complex, and the Bahamas needed to determine what it was going to tax - and why - should it opt to ultimately go this route.

For starters, he said this nation needed to decide if it will implement such a levy on a 'territorial' basis, and tax only income/profits generated in the Bahamas, or whether it will go for 'residence-based' taxation on an entity's worldwide earnings.

Corporate taxation regimes are also well-known for their complexity, offering numerous deductions, exemptions and 'carve-outs', which is partly why the Christie administration opted in favour of Value-Added Tax (VAT) in 2015 rather than any form of income tax.

Mr Riva said an ever-expanding network of anti-avoidance provisions will be needed to police a corporate taxation regime, bringing with them additional costs and bureaucracy, and "getting a little industry going" that was "good for accountants".

"The key is: What do you want to tax?" he said. "What are you trying to do with corporate taxation? We now know it's not to get off the EU 'blacklist'.

"Whatever you do you must understand the implications. The changes to your 'ring fencing' will have an economic impact. Do you know what they are? You cannot introduce legislation in a vacuum."

Many financial services industry executives have argued in favour of introducing a low-rate corporate tax, arguing that this will enable the Bahamas to shed its 'tax haven' label and reposition both the economy and financial services industry by opening up 'double taxation' and bilateral investment treaties.

Such taxation may also be needed to satisfy the Organisation for Economic Co-Operation and Development's (OECD) Base Erosion and Profit Shifting (BEPS) initiative, but Mr Riva warned that establishing a meaningful 'double taxation' network will also not occur overnight.

The KPMG executive, who works on such arrangements for the Jersey government, said establishing such a network often took 10 years. "It won't be super duper fast," he added.

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