Dion Foulkes, Minister of Labour.
Photo: Lionel Smith
By KHRISNA RUSSELL
Deputy Chief Reporter
SENATOR Dion Foulkes yesterday forecast the country would soon face more pressures from the European Union and should be ready to act quickly to avoid further reputational damage.
On Friday, Finance Minister K Peter Turnquest announced the Bahamas had been removed from the European Union's "blacklist" of non-cooperative jurisdictions for tax purposes based on "excellent coordination" with a technical working group, assembled by the government to address the scenario.
The country was moved to Annex 2, commonly referred to as the grey list, and has until the end of 2018 to fulfil its commitments.
In December 2017, the country agreed to join the Base Erosion and Profit Shifting (BEPS) initiative but was blacklisted in March 2018.
According to Mr Foulkes, who is also Labour Minister, the Europeans are using their collective economic and financial strength to compel compliance with their initiatives.
These are designed to recover any taxes which might be lost to their ministries of finance, due to the operations of tax havens and offshore financial services centres, he said.
"Many Bahamians justifiably ask why do we accept such unrestrained exercise of extraterritorial power by the EU; why do we comply? The short answer is that 'we must comply'," Mr Foulkes said in the Senate yesterday. Senators are now on the second reading and committal of the Multi-National Entities Financial Reporting Bill 2018.
"Just as when the USA implemented the Foreign Accounts Tax Compliance Act (FATCA) in 2014, the whole world was forced to implement the automatic exchange of tax information on all US citizens who held bank accounts either in their own names or in a company registered in a foreign country. The untrammelled power and financial strength of the USA was enough to compel all to comply.
"The PLP, who were in government at that time, duly complied along with the rest of the world. Because failure to comply would have resulted in the imposition of harsh 'counter-measures' by the US, and the loss of the ability to utilise international wire transferring mechanisms such as the SWIFT system which is controlled by the US.
"For any country, the loss of such privileges and the imposition of economic sanctions would have had a disastrous impact, much more so on a small and open economy such as The Bahamas, where more than 90 percent of our tourists come from the USA.
"The Europeans have similar powers as the USA in the financial services arena. Hence, a blacklisting could easily have resulted in the loss of correspondent banking relations, where banks abroad - and particularly in Europe - could easily have decided to take "de-risking measures" by shutting off commercial relations with banks and financial institutions located in The Bahamas, on the basis that The Bahamas is a 'risky jurisdiction'."
He continued: "If correspondent banks in Europe were to stop taking deposits of money or payments made from The Bahamas, the effect would be exactly the same as if we were cut off from the SWIFT system by the USA; namely, that money could not go out of or come into The Bahamas by a wire transfer.
"Business would come to a screeching halt and the economic damage would be devastating and long-lasting. These are the harsh realities of today's world. It is all about tax collection. Period."
Regarding the Multi-National Entities Financial Reporting Bill 2018, Mr Foulkes said the legislation imposes what is called "Country by Country" reporting requirements on entities registered or incorporated in The Bahamas that are "constituent entities" in a Multi-National Entities (MNE) international business structure. If the head office of the MNE or parent is a company in The Bahamas then it must report.
He told the Senate this Bill enjoys wide support from the financial services sector because it is designed to have a very limited impact, meaning it applies only to MNE entities in The Bahamas which are a part of the Companies Structure of a Multinational Corporation such as IBM, EXXON, Google and others, which earns an Annual Gross Turnover in excess of $850 million.
So a Bahamian company or Parent Company which is a part of a MNE or transnational Company which earns gross turnover of less than $850m each year would be entirely unaffected by this law, Mr Foulkes said.