By NATARIO McKENZIE
Tribune Business Reporter
The Deputy Prime Minister yesterday said the OECD's targeting of the Bahamian economic permanent residency regime was "not really of concern" because it is not used for tax purposes.
K Peter Turnquest, pictured, while agreeing it was "unfortunate" that this nation's major investment product had been singled out by the Organisation for Economic Co-Operation and Development (OECD) as potentially undermining the fight against global tax evasion, said a strict regulatory regime prevented it being exploited by "undesirables".
"It's not an issue that is peculiar to us. It is a global issue," Mr Turnquest said. "They [the OECD] have issues within the European Union with respect to this. They are sensitising each other, and financial institutions, to do a bit more checking with respect to people who may have multiple citizenships or residences just to ensure that none of them are being used for the purpose of avoiding tax.
"For us it doesn't matter because we don't give residency for tax purposes. We give residency for legitimate investment, and we do not absolve people from their reporting requirements to their home country because we do not have any double taxation agreements or things of that nature for second homes.
"It is not really of concern to us because we do not use residency for tax purposes, and we do not absolve people from their obligation to report to their home country. We have a very robust due diligence procedure to ensure that we do not have undesirables come to reside in the jurisdiction."
The OECD recently listed this nation's economic permanent residency offering among 21 incentive regimes it says jeopardise "the integrity" of automatic tax information exchange. Bahamian financial services executives, though, believe the ramifications are more serious than Mr Turnquest indicated, as the move is "not positive no matter how you spin it".
The Bahamas' inclusion on the OECD list, at the very least, will plant "seeds of doubt" and uncertainty in the minds of investors as to the benefits of holding/seeking economic permanent residency given that they will likely be subjected to greater scrutiny.
This will be especially unwelcome for investors who have legitimate privacy concerns, such as those from high-crime and politically unstable countries in Latin America, increasingly a key source of business for The Bahamas, who may fear that information extracted by greater CRS scrutiny could fall into the wrong hands.
As a result, the OECD listing threatens to negatively impact a wide cross-section of the Bahamian economy, not just the hard-pressed financial services industry. Besides attracting high net worth clients and their assets to this nation, economic permanent residency drives lucrative business for real estate developers, realtors and attorneys, and produces spin-offs affecting virtually all industries.
The OECD, in unveiling its listing, said all the regimes - including The Bahamas' economic permanent residency - "potentially pose a high-risk to the integrity of CRS". That refers to the Common Reporting Standard (CRS), the OECD's global reporting standard for automatic tax information exchange, which The Bahamas began implementing last month.
It added that all the investment-related residency/citizenship products identified "can be potentially misused" to enable individuals to "hide their assets offshore by escaping reporting" requirements under the CRS.
"Potentially high-risk CBI/RBI (citizenship by investment/residency by investment) schemes are those that give access to a low personal income tax rate on offshore financial assets, and do not require an individual to spend a significant amount of time in the location offering the scheme," the OECD, which represents the world's most powerful economies, added.
"Financial institutions are required to take the outcome of the OECD's analysis of high-risk CBI/RBI schemes into account when performing their CRS due diligence obligations."
The OECD said data obtained from the CRS's automatic tax information exchange initiative had shown these regimes were open to "abuse", describing those posing the greatest risk as levying less than a 10 percent income tax on beneficiaries. There was also no requirement for persons to remain in the jurisdiction offering the incentive regime for a minimum of 90 days per year.
The Bahamas, since the International Persons Landholding Act (IPLA) was passed in 1993, has used economic permanent residency as a tool to help entice high net worth individuals to make a financial investment in this nation - primarily through property purchases.