By NATARIO McKENZIE
Tribune Business Reporter
The Clearing Banks Association's (CGA) chairman yesterday said the OECD's finding that The Bahamas' tax regime is "not harmful", while "good news", represents only a "temporary reprieve".
Gowon Bowe, pictured, told Tribune Business: "That is a positive statement because the OECD is principally made up of the EU (European Union), and the EU had not so long ago deemed us to be harmful.
"In order for it to get through the OECD regime it will not mean the EU will not continue, and there is nothing that would dispel the conspiracy theory that they are tag teaming and just attacking from different angles."
He continued: "As it relates to what they have assessed, I'm going to say there is a temporary reprieve in that they are saying that the way we tax organisations, domestic and international and all residents, is not so discriminatory that it creates an environment that is more favourable for persons to run from their home jurisdiction and get benefits that the domestic persons in The Bahamas wouldn't get. All of the legislation passed in December, January through March, to meet the EU requirements were really the same things presented to the OECD."
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.
K Peter Turnquest, the deputy prime minister, said in reponse:"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."
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.