By NEIL HARTNELL
Tribune Business Editor
The Deputy Prime Minister yesterday revealed that unspecified "concessions were necessary" to meet European and OECD demands for The Bahamas to end so-called "ring fencing".
KP Turnquest, in messaged replies to Tribune Business's questions, said the Government has allowed for the "grand fathering in" of foreign investors already enjoying preferential tax incentives in draft legislation that eliminates such advantages.
Asked by this newspaper whether there were provisions that protected International Business Companies (IBCs) and other non-resident entities already enjoying such tax breaks, Mr Turnquest replied: "Yes, but concessions were necessary to meet the standard set by the international bodies."
He did not detail the "concessions" or "international bodies" he was referring to, although these are likely to be the European Union (EU) and Organisation for Economic Co-Operation and Development (OECD) - the two entities he and fellow Cabinet ministers met with last week to update them on The Bahamas' compliance with their anti-corporate tax evasion drive.
The 29 (soon to be 28) member EU, in particular, is demanding the elimination of "ring fencing", or preferential tax regimes for non-resident entities and foreign investors, which are not offered to their Bahamian counterparts.
Many in the financial services industry have warned that The Bahamas needs to be especially careful in how it responds to the "ring fencing" issue, which the Government plans to do through the Removal of Preferential Exemptions Bill.
This is because existing investors already have a legitimate expectation of enjoying such preferential incentives, such as the 20-year stamp tax regime for IBCs and flat $300 Business Licence fee for non-resident entities. Abruptly ending them, and failing to "grandfather" them into the new regime, would not only shatter investor confidence in The Bahamas but could also prompt lawsuits from these investors.
Tribune Business sources, speaking on condition of anonymity, told Tribune Business that "the latest draft" of the Removal of Preferential Exemptions Bill "did contain these grandfather provisions to some extent" - although not all the existing tax incentives are apparently covered.
Michael Paton, a former Bahamas Financial Services Board (BFSB) chairman, told last month's Nassau Conference: "The big issue is ring fencing. We have to address this. Under the new criteria you cannot have advantages offered to non-residents only in respect of transactions between other non-residents, and we can't have those advantages ring fenced from the domestic taxes.
"How do we eliminate preferences and ring fencing without causing irreparable, catastrophic damage to the Bahamas as an IFC? As I and others see it, the two primary issues we are facing is Stamp Tax and Business License."
And Ryan Pinder, a former financial services minister, told Tribune Business earlier this year that The Bahamas "could kiss the entire IBC market goodbye" if it gets its response to Europe's "ring fencing" demands wrong, branding it a "make or break" issue.
Mr Turnquest, meanwhile, told Tribune Business yesterday that he and his two fellow Cabinet ministers - Carl Bethel QC, the attorney general, and Brent Symonette, minister of financial services - "were able to agree on an acceptable approach" with the OECD to addressing its concerns over The Bahamas' economic permanent residency regime.
This nation's key investment product was listed among regimes deemed vulnerable to potential abuse by tax evaders, and therefore posing a risk to the integrity of the OECD's Common Reporting Standard (CRS) for global automatic tax information exchange.
Mr Turnquest, though, said a key objective of the meeting was "to discuss the permanent residency by investment programme and advise that we do not issue citizenship by investment".
Revealing that he was "very confident" The Bahamas will avoid any further EU or OECD "blacklist", the Deputy Prime Minister nevertheless cautioned: "Circumstances change, and thus we have to be vigilant and proactive.
"Our overall objective was to update the OECD and EU on our progress on tax information exchange systems, and confirmation that we met our September deadlines in that regard; that we have met our commitments in respect to our previously-communicated implementation timelines and agenda; to introduce our legislation passed and that being drafted for comment by their technical team before finalising and laying in Parliament... In all spheres our discussions were productive, and we feel we accomplished our objectives.
Mr Turnquest added that the tabling, and passage, of four Bills that the Government wants to pass through Parliament this month do not depend on OECD and EU approval, telling Tribune Business: "We are set to go".
Apart from the Removal of Preferential Exemptions Bill, these also include the Commercial Entities (Substance Requirements) Bill; Register of Beneficial Ownership Bill; and the Non-Profit Organisations Bill.
"The general observation from both the OECD and EU is that we have made significant progress, and they are satisfied with our commitment at the highest levels of government. They were pleased with the draft legislation following a walk through with the technical team," Mr Turnquest told Tribune Business.
"While we are on track with our commitments, our point to them is simply that the practical limitations to our fiscal and systemic and human resources must be taken into account in setting timelines and the effect any dramatic shift in policy will have on our economic structure."
Brian Moree QC, senior partner at McKinney, Bancroft & Hughes, yesterday praised Mr Turnquest for driving home the economic price that The Bahamas is paying for repeated "blacklisting" threats from both the EU and OECD. He added, though, that "the details" from the Government delegation's meetings were critical and eagerly awaited by industry.
"The initial reports coming out of the meeting are positive and sound promising, but we'll have to see what the details are," Mr Moree told Tribune Business. "It appears as if drafts of those four Bills were submitted without any major push back on any of the major issues. Industry will be eager to see the latest drafts and see whether there's any changes as a result of these meetings.
"It was very helpful to read that apparently the deputy prime minister did address the negative impact these persistent threats of blacklisting have on the economy of The Bahamas and the investment climate.
"I would applaud the Deputy Prime Minister for putting that on the agenda and discussing that. It has caused considerable anxiety and some degree of dislocation in our sector when these threats of blacklisting are made."
Mr Moree said "a more collaborative and co-operative" approach by the EU and OECD towards The Bahamas, which avoided threats of sanctions and "blacklisting", would be "a major accomplishment for the Government" if it can be achieved.