By NEIL HARTNELL
Tribune Business Editor
A former attorney general has called for an “upgrading” of the Companies Act while rejecting arguments that recent reforms meant the “death of international business companies”.
John Delaney QC, now-principal at the Delaney Partners law firm, told Tribune Business that the “more flexible corporate structure” of IBCs meant they retained their superiority over domestic companies despite being stripped of numerous tax advantages.
And, in similar fashion, Mr Delaney said he did “not see an end to financial services in The Bahamas at all” despite the latest round of enforced changes to meet the combined demands of the 28-nation European Union (EU) and Organisation for Economic Co-Operation and Development (OECD).
He even added that there was a strong argument for “modifying” the Companies Act to ensure domestic entities were as flexible as IBCs, suggesting there was much more work to be done beyond the overhaul of its winding-up/liquidation regime which he oversaw while holding ministerial office in 2011.
“I don’t see it as the death of IBCs,” Mr Delaney told Tribune Business of the latest legislative reforms. “‘This legislation is laser-focused on things to do with taxation. That’s all it is. The IBC as a corporate regime has benefits beyond fiscal matters and tax efficiency.
“Generally speaking, it is a more flexible corporate structure than our Companies Act. There’s still reason enough, if you had to choose between a Companies Act vehicle and the IBC Act, one can compare and contrast these corporate regimes and see greater flexibility in IBCs compared to Companies Act companies.”
Mr Delaney argued that this meant there was still reason enough for investors to incorporate Bahamian IBCs, the “designer choice” vehicle for the financial services industry, thereby implying that suggestions of its imminent demise were exaggerated.
He acknowledged, though, that the EU-related legislation was “removing certain features that made IBCs advantageous compared to Companies Act companies, but this doesn’t mean there’s no distinction”.
In particular, the Removal of Preferential Tax Exemptions Act strips IBCs and other non-resident entities popular with foreign investors of tax benefits/advantages that counterparts operating in the domestic Bahamian economy did not have access to.
Existing IBCs will, from 2021, lose benefits such as the current 20-year Stamp Duty exemption and annual $300 license fee, while new ones incorporated since that Act was passed will automatically not enjoy them. The premature end to existing IBCs’ tax preferences may well result in litigation, Mr Delaney and others have pointed out.
This effectively places IBCs and other non-resident entities, such as Exempted Limited Partnerships (ELPs), Investment Condominiums (ICONs) and Executive Entities on a taxation “level playing field with domestic companies” as The Bahamas’ answer to EU demands for an end to preferential tax treatment - a practice known as “ring fencing”.
Mr Delaney, meanwhile, said there was a compelling case for further Companies Act reforms now that the legislation demanded by the EU has been enacted.
“There might be a case to make the Companies Act more flexible,” he told Tribune Business, “and that’s a legitimate argument to be had. The Companies Act needs upgrading.
“I did the massive upgrading of the liquidation regime when I was attorney general, but that is not the end of it. There are other aspects that can be modified.”
Mr Delaney also decried suggestions that The Bahamas’ financial services industry was “at an end” as a result of the latest enforced changes, arguing that such predictions were coming from those who could not see beyond its current structure “for it to survive” and were ignoring its history of adaptability and evolution.
“That’s not the case at all,” he told Tribune Business. “If you look at our industry over a 60 year-period there’s been almost constant evolution. Over the last 20 years there’s been a quicker pace in such evolution, particularly around fiscal matters.
“I don’t see it at an end at all. It’s an opportunity, not of our making, to evolve and make the most of it, competing in ways that are not built around fiscal matters. The IBC Act was not just about tax advantages; there’s an opportunity to have a modern, state-of-the-art regime not geared around tax minimisation but serving the flexible needs of business activities that are not harmful.
“We can do that because smaller jurisdictions and more agile Parliaments are able to introduce legislation to encourage it,” Mr Delaney added. “We can take advantage of the entirety of that which The Bahamas has to offer in terms of less cumbersome regulation, making it a convenient place for certain types of business activity.
“That must have been behind the Government’s thinking on the Commercial Enterprises Act. I think over time, not a long time - it should take five to 10 years - the impact of that legislation is going to come more and more into focus.”