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Bahamas To 'Harmonise' Ibcs, Domestic Entities

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Deputy Prime Minister yesterday expressed "100 per cent" confidence that The Bahamas will meet Europe's year-end target, as it prepares to "harmonise" IBCs and domestic companies.

K P Turnquest, pictured, told Tribune Business that "work is still ongoing" on how The Bahamas will achieve this, with "co-ordinating legislation" planned to amend the International Business Companies (IBCs) Act and Companies Act to the 28-nation European Union's (EU) satisfaction.

Providing no details, Mr Turnquest said the "harmonisation" was necessary to address the EU's demands for an end to so-called "ring fencing".

"That's all in reference to the concern that the EU has with respect to the treatment, or taxation, that Bahamian companies are subjected to but which international companies are exempt from by virtue of not being allowed to do business in the Bahamas," the Deputy Prime Minister said of reforms that are expected to be finalised by this July.

'Ring fencing' involves preferential tax regimes that offer exemptions/benefits for non-resident entities, and foreign investors, which are not enjoyed by companies doing business in the domestic economy.

Non-resident, or 'offshore', Bahamian entities currently enjoy Stamp Tax exemptions, lower Business Licence fees and other tax breaks not granted to domestic companies. These now have to be "equalised" to meet the EU's anti-tax avoidance demands by December 31, 2018, and avoid another threatened 'blacklisting'.

Mr Turnquest yesterday confirmed that the Government was assessing how to 'grandfather' existing IBCs into this new regime, given that their beneficial owners had legitimate expectations of enjoying the 20-year exemptions provided under the current Act when they incorporated.

Business strategies will also have been based on this understanding, and the Deputy Prime Minister told Tribune Business: "We recognise there are concerns with respect to existing IBCs and rights they may have, being licensed and incorporated under existing legislation. That is part of what we are considering in determining how we're going to proceed."

Chester Cooper, the Opposition's finance spokesman, yesterday raised the 'grandfathering' of existing IBCs as a concern during his contribution to the Multinational Entities Financial Reporting Bill debate in the House of Assembly.

Describing the EU's 'ring fencing' elimination demands as "an attack on IBCs", Mr Cooper urged the Government to outline its compliance strategy and how this will affect both domestic and non-resident companies.

"It is critical that as we address this issue we do not adversely impact the local sector in our attempt to harmonise with the demands of giant international bodies," the Exuma and Ragged Island MP warned.

Attorneys and financial services industry executives have also expressed concerns privately to Tribune Business that the elimination of 'ring fencing', in effect, means an end to the advantages which attracted international clients to use IBCs and made them the "designer vehicle of choice" in corporate structures.

Michael Paton, a former Bahamas Financial Services Board (BFSB) chairman, previously told Tribune Business that this nation needed to carefully "examine how we approach" the elimination of 'ring fencing' given the loss of business that could result if it got this wrong.

"Do you equalise treatment? That's one way of doing it. Or do you close off those benefits to non-resident entities and have a phase-out period? While you do that phase-out period, you have to figure out how to equalise the benefits on both sides. You can't have a difference between non-resident and resident entities," he said.

Revealing that his personal preference was for the 'phase-out' period and setting of a date when 'ring fencing' would be eliminated, he added: "You could equalise now or close off and provide some time to come up with equal treatment.

"That's probably the preferred way to do it. You have a clear 'run off' period, grandfather and close off the existing, so you know the regime is closing on a certain date. "That gives you enough time time to figure out how to change the exemptions; how you approach it for everybody going forward on Stamp Tax, Business Licence fees."

The Bahamas, and all other nations, have until year-end 2018 to pass and implement measures that will satisfy the EU's anti-tax avoidance demands. This nation currently sits on the 28-nation bloc's 'blacklist', and is awaiting a May 27 meeting of EU finance ministers to formally ratify its recommended removal.

Mr Turnquest yesterday told the House of Assembly that the current 'blacklisting' had resulted from an "inconsistent" approach on the EU's side, but he conceded that the Bahamas had not been "engaged" to the extent it was seeking.

The Deputy Prime Minister said the Government had moved to address those concerns, and was now in frequent contact with the EU, telling it "what we're doing today, what we're doing tomorrow" in a bid to avoid further mishaps.

"We are engaged," he told Tribune Business. "We are communicating fully with the [EU] Code of Conduct Group. We expect that communications will continue, and if any issues arise we will be notified promptly and we will address them promptly, as we have been doing."

Mr Turnquest also tabled the Government's plans and implementation timetable for addressing the EU's concerns, confirming that "further legislation" beyond the Multinational Entities Financial Reporting Bill will be required.

Besides 'ring fencing', the EU's other major demand is that companies conduct 'real business' and have a physical presence in the Bahamas, meaning this nation will have to develop 'minimum economic substance' requirements for all industries.

The EU believes that multinational companies can exploit loopholes, and differences in tax regimes and rates between countries, to artificially shift profits, revenues and assets to low-tax jurisdictions such as the Bahamas despite having no physical presence - and conducting no real business - in this jurisdiction.

Given the absence of corporate tax, the 28-nation bloc sees the Bahamas as a location that multinationals can exploit to avoid due taxation in their states and elsewhere - especially in the absence of rules mandating 'economic substance', 'physical presence', and the conduct of actual business here.

The Government's timetable shows that June 2018 will be devoted to devising "reasonable" 'economic substance' reforms, which will include regulatory changes; new tax and reporting requirements; and the development of enforcement mechanisms and penalties to ensure compliance.

This work will then be shared with the financial services industry and other stakeholders for consultation in July, along with the IBC/domestic company "harmonisation" plan. Cabinet approval for all these changes will be sought on July 31, 2018.

The Government then intends to debate and pass the resulting legislation through Parliament in September 2018, ahead of the EU's December 31 deadline, while all the while keeping the latter's 'Code of Conduct' group informed.

Mr Turnquest yesterday admitted to Tribune Business it was "an aggressive schedule", with both government and industry compliance officers needing to be trained on the new regime's requirements prior to implementation.

His opposite number, Mr Cooper, yesterday called on the Bahamas to "leverage" the EU's 'economic substance' demands to attract companies to establish operations and offices in this nation, thereby boosting economic activity and creating jobs.

He questioned, though, what the Bahamas' financial services "value proposition" and business model will be going forward, and how it will place the sector on a viable, sustainable footing.

"In my view, we must use an economic substance argument to make the Bahamas more attractive, and to demonstrate to the self-appointed financial services police of the world that there is purpose in doing business in the Bahamas other than just dodging higher taxes elsewhere," Mr Cooper said.

"We have emphasised to the world that we are not a haven for crooks or money launderers. We have demonstrated it by our actions and the myriad of laws we have passed in this place. Now we need these self-serving agencies to cut us some slack.

"The requirement for substance in the Bahamas might be leveraged to our advantage. This approach, used strategically, would attract new business to the Bahamas. However, we must be competitive and we must ease bureaucracy and make it easier to do business here."

Attacking the EU's tactics, Mr Cooper added: "I am often offended by what I call the 'gun boat diplomacy' of these international agencies, who want us to get along but who want us to do it their way.

"Whilst we recognise some realities of small countries, we must realise we are being strong-armed and develop a better strategy, a proactive strategy, hopefully a bi-partisan strategy for when the next threat of blacklisting comes.

"And I assure you, Mr Speaker, as sure as the sun will set today, no matter what we pass in this House, more threats of blacklisting will come as they intentionally and consistently move the goal post."

Comments

Well_mudda_take_sic 11 months, 1 week ago

Like Trump in the U.S., we should be telling the EU to go fly a kite. The EU persists in usurping our sovereign right to determine what is in our best interest as a nation. They do this under the ill-conceived notion that they somehow have a right to bully smaller nations like ours for their own economic benefit. For the past two decades they have been bullying us to act as an enforcement arm of their own taxing authorities, but entirely at our cost. Furthermore, they have maliciously made it impossible for our offshore financial services sector to compete with their own onshore financial services sector. Bahamian taxpayers and Bahamas-based financial institutions have been saddled with outrageous costs because of the morally reprehensible motives of the EU aimed at unfairly serving their interests to the detriment of our own. The EU countries do all of this bullying under the guise of protecting the tax bases and financial systems of their own countries from money-laundering and terrorism. But that is all poppy-cock because the main EU countries (Germany and France) are quite content to have very close economic ties and interests in common with the world's chief sponsor of money-laundering and global terrorism, namely Iran. What an utter joke! We need to start looking out for our own interests before it is too late, even that means cozying up to a big brother like the U.S. or China. Yes indeed, it is high time the EU be told to go fly a kite whenever it behaves like a bully with no regard whatsoever for our sovereign interests and the standard of living and quality of life of the Bahamian people. Their people are no more important than ours!

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