By NEIL HARTNELL
Tribune Business Editor
The financial services industry wants the Bahamas "not to go further than it has to" in meeting Europe's anti-tax avoidance demands and averting a potential 'blacklisting'.
Michael Paton, a former Bahamas Financial Services Board (BFSB) chairman, told Tribune Business that the sector will meet today to assess and draw-up its collective concerns over legislation to address the European Union's (EU) 'economic substance' and 'ring fencing' requirements.
The industry then plans to submit the issues raised over the Commercial Entities (Substance Requirements) Bill 2018 to the Government by week's end, with Mr Paton questioning why September 19 appeared to be such "a hard and fast date" to have the legislation tabled in the House of Assembly.
Acknowledging that "the timelines are very constrained" for the Bahamas to pass, and enact, the legislation before the EU's year-end deadline for compliance, the Lennox Paton attorney and partner said he expected changes will be made to the Bill over the next nine days.
"There is going to be an industry-hosted forum on Monday [today] to get feedback, and go over feedback, in relation to the Bill," Mr Paton said. "There's been quite a flow of comments in, and I expect there to be some changes to the Bill before it gets tabled in Parliament.
"I know there are some concerns in some sectors as to how they are impacted by the Bill. We're trying to get industry concerns and put them in a coherent submission to the Government that will be provided by the end of next [this] week. I do believe there will be changes and we'll have to see how that plays out."
Detailing industry concerns, Mr Paton said these included how physical presence requirements in existing Bahamian laws and regulatory regimes - such as the Banks and Trust Companies Act - will be accommodated by the new Bill.
"Is that sufficient," he said of existing laws, "or are you going to require me to do something more? What's the degree and nature of reporting that has to be done? How do you show you are compliant, and what do you have to report? It's going to be the reporting aspect, the physical presence issue. That's what people want to get a better understanding of and how it's going to play out.
"The industry wants the Bill not to go further than it has to to meet the EU."
K P Turnquest, deputy prime minister, told Tribune Business last week that the Minnis administration aims to lay the Bill in Parliament on September 19, when the House resumes sittings following its summer break.
He said the Government was in the last stages of consultation with the financial services industry, and seeking to handle the sector's final questions, as it strives to meet the tight timeline for passing and implementing the legislation ahead of the EU's threatened 'blacklisting' of jurisdictions deemed uncooperative in the fight against tax avoidance.
Agreeing that the Bahamas faces a tight timeline, Mr Paton nevertheless said: "I don't know why that's [September 19] a hard and fast date. I don't know why the Bill has to be tabled on that date, but I hope if we need more time we will get more time."
He suggested that the Bill needed to be passed by November, so it could be "bedded down and everything be in effect by January 1". The attorney added that a transition period, giving all affected a time to adjust, was not unreasonable although it remains to be seen how the EU will react to that.
The Commercial Entities (Substance Requirements) Bill is designed to address the EU's demand for all nations to impose 'economic substance' regimes that effectively require companies to have a physical presence - and do 'real business' - in a jurisdiction.
It wants corporate profits, revenues and assets to be taxed in the jurisdictions where they are generated. They are thus aiming to prevent companies, especially multinational corporations, from exploiting gaps in tax types, rates and rules to artificially shift profits from jurisdictions where they are generated to low or 'no tax' jurisdictions, thus lowering their tax bill.
The EU also wants the elimination of 'ring fencing', or preferential tax regimes for non-resident entities and foreign investors, which are not offered to their Bahamian counterparts. A particular concern here is the preferential Stamp Tax regime for International Business Companies (IBCs), already in existence, and which investors have a legitimate expectation of enjoying.
Mr Paton said the Bahamas needed to move swiftly, and decisively, in developing tax and incentive regimes to attract the business and industries it wanted to these shores once the EU's concerns were addressed.
He explained that the EU's demands should "level the playing field for economic substance" between most countries, meaning that the Bahamas will have to look to tax policies to "differentiate" itself in the eyes of international investors.
"We've got a lot of high-level planning that needs to be done, and hopefully that will be done in a coherent manner to attract business to the Bahamas," Mr Paton told Tribune Business. "Tax is going to be a driver for that.
"If we're trying to attract a particular business to the Bahamas we're going to have to attract it for other reasons other than physical presence and substantive activities in the jurisdiction. If we're going after shipping companies and headquarters, we have to put in place incentives to get them to come, have a reason to come.
"It can't be on the basis of compliance and having substantive economic presence requirements. That's not going to be the leverage. It's going to be the other tax concessions provided."