The Tribune

The deputy prime minister yesterday hailed the Organisation for Economic Co-operation and Development’s (OECD) finding that The Bahamas’ domestic tax laws are “not harmful”.

KP Turnquest, in a statement, said the Paris-based body’s assessment reinforced the notion that The Bahamas “is a safe place for financial services and other investment activities”, while also confirming that this nation delivers on its international commitments.

The OECD review, which encompassed 11 other jurisdictions with “no or nominal” income tax regimes, assessed whether they and The Bahamas were in compliance with one of the “actions” they pledged to implement in order to comply with its Base Erosion and Profit Shifting (BEPS) initiative.

It focused on BEPS’ so-called “Action 5”, which deals with countering “harmful tax practices”, and especially whether this nation and the others had imposed “economic substance” requirements on entities operating from their jurisdictions to ensure they were conducting real business through physical offices and employees based there.

The OECD, noting that “economic substance” requirements had taken effect from January 1, 2019, via the Commercial Entities (Substance Requirements) Act 2018, added that The Bahamas’ “domestic legal framework meets all aspects of the standard” and is therefore “not harmful”.

The findings were approved by the OECD’s Forum on Harmful Tax Practices during a June 2019 meeting in Paris, and formally announced last Friday.

“This confirmation by the OECD that The Bahamas’ domestic laws are not harmful affirms The Bahamas as a partner in the global fight against harmful tax practices, and reinforces to the international community that The Bahamas is a safe place for financial services and other investment activities,” Mr Turnquest said in a statement.

“Our commitment to the enhancement of transparency mechanisms demonstrates yet again that The Bahamas will not be a jurisdiction that encourages or facilitates financial crimes, including tax evasion and money laundering.”

Mr Turnquest added: “The Ministry of Finance will now ensure all participants in the financial services sector, including regulators, industry and other stakeholders are doing their part to monitor full compliance with all the provisions of law.

“The Working Group on Financial Sector Reform will continue to review our legislative framework and engage with the international organisations to ensure the interests of our financial services sector are represented and protected.”

The Bahamas was represented at the OECD’s June meeting by Stephen Coakley Wells, director of regulatory and international affairs at the Ministry of Finance, and Adrianna Knowles Rahming, legal officer at the Ministry of Finance.

The BEPS “Action five” standard requires that geographically mobile activities, such as financial services, and its core income generating activities must be conducted with an adequate amount of qualified employees and operating expenses within a jurisdiction.

The Commercial Entities (Substance Requirements) Act 2018 was passed to address European Union concerns that The Bahamas provided a commercial environment with no or low effective tax rates on income, thereby attracting investments through corporate vehicles that had no substantial economic presence - and which did not engage in real economic activity - within the jurisdiction.

The EU’s assessment of The Bahamas’ substance legislation was conducted in March 2019, and was the basis for its decision that The Bahamas should not be included on the list of non-co-operative jurisdictions for tax purposes that was published that same month.

The OECD will review The Bahamas’ implementation of the new law, and its effectiveness in practice, in 2020. Its BEPS initiative aims to ensure that the profits of multinational companies are taxed in the country where they are generated, and attempts to prevent multinational companies using often-legitimate tax avoidance strategies to “exploit gaps and mismatches” between different countries’ tax rules and “artificially shift profits” to low or ‘no tax’ jurisdictions.

This enables them to minimise their tax exposure by paying a lower rate, and more than 100 countries worked under OECD oversight to implement 15 so-called BEPS “actions” designed to halt the loss of much-needed tax revenue by developing countries due to such practices.

Countries had to confirm they were implementing a minimum four out of these 15 “actions” by December 2017. The four that The Bahamas selected were (Action 5): Countering Harmful Tax Practices; (Action 6): Treaty Shopping; (Action 13) Transfer Pricing Documentation and Country-by-Country Reporting; and (Action 14) Dispute Resolution.