The Tribune

• Govt urged: ‘State position’ on corporate tax

• Can’t afford for financial services uncertainty

• May change ‘bottom line across the board’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A risk-management specialist is urging the government to state its position on the global minimum corporate tax rate drive in tomorrow’s budget given the threat to The Bahamas’ “value proposition”.

Hubert Edwards, principal of Next Level Solutions, a Bahamas-based corporate governance and risk management consultancy, told Tribune Business it was vital that the government provide “clarity” to the Bahamian financial services industry on how it plans to respond to an initiative that appears to be gaining increasing traction.

Speaking after the US Treasury Department last week proposed a 15 percent minimum global corporate tax rate, although it said this was “a floor” that should be pushed higher in negotiations, Mr Edwards said the push by the Biden administration in concert with high-tax European states represented a direct challenge to The Bahamas’ long-standing “no tax” business platform.

“The implication for The Bahamas is that it has the ability to fundamentally change the value proposition for financial services,” he told this newspaper. “Decisions have been made up to now on the basis of no tax.

“This has the potential to change the way we tax, and it puts pressure on the government to start thinking whether or not this will be a new regime of corporate taxation. They seem to be working in that direction, but we do not have a clear pronouncement up to now of whether the country is going to pursue that.

“We have to make a decision as to whether or not we are going to accede to the pressure in this instance, or we have some other way of moving forward without hurting the financial services industry or the economy.”

Mr Edwards said The Bahamas has traditionally relied upon the US to blunt initiatives launched by the European Union (EU) and its members, but the Biden administration is in lock-step with its counterparts across the Atlantic as part of what it views as a drive to get US multinationals - especially digital companies such as Facebook, Google and Amazon - to pay their fair share in taxes.

It is determined to prevent what it believes is the ‘offshoring’ of multi-billion revenues and profits to low-tax jurisdictions that enables such companies to minimise their tax burdens, even though such income was earned elsewhere. Together with the Europeans, the Biden administration views this as producing ‘a race to the bottom’ on tax rates in a bid to attract such corporate business.

Hence its support for a global corporate minimum tax rate to prevent such practices. “We as a country have to stand up and pay very careful attention as to how this will impact financial services and the wider economy,” Mr Edwards said of the consequences for The Bahamas.

“Especially at this time when we are facing a crisis that has affected the first prong of the economy, tourism, we cannot afford for the second prong of the economy to come under pressure. It would be disastrous.

“We don’t know where tourism is going to be. We saw what has come out of Atlantis. Atlantis is usually an early adapter, so tourism is going to be under great pressure. Financial services, though, has shown itself to be a great adapter in this environment, but this is going to be unsettling for the industry,” he added.

“We definitely need to see a position, and that’s one of the things that should be stated in the upcoming Budget. We definitely need to get some level of clarity, so there is certainty and predictability throughout the industry and persons make decisions on a solid basis.”

Mr Edwards described the fact that the US and EU appear to be going “down the same road” as “a game changer” for The Bahamas and other international financial centres (IFCs), and added: “We need to put our strategic plan in place so we can respond wisely.”

Paul Moss, president of Dominion Management Services, told Tribune Business that the US and EU offensive was “all about tax competition” and added: “They don’t want a nation like The Bahamas to have a rate that is markedly different from whatever they propose.”

Should the US and European vision become reality, Mr Moss said it would “change the bottom line across the board” as the Bahamian financial services industry would have to compete on attributes such as cost and quality of the products and services it offers. He reiterated his call for The Bahamas to get out ahead by implementing a corporate income tax designed for its own needs.

It now appears inevitable - and only a matter of time - before a minimum global corporate income tax rate emerges, with corresponding pressure on all nations to conform. The International Monetary Fund (IMF) has also backed the initiative.

The Biden administration’s move is a marked change from the stance taken by its Trump predecessor, which was more focused on allowing sovereign nations to set their own tax rates and opposed to European efforts to impose a so-called “digital tax” on US multinational giants such as Amazon, Google, Facebook and Apple.

However, the newly-elected Democratic government sees a global minimum corporate tax as critical to preventing such companies from minimising their tax burden via creative structures that shift profits and revenues to low-tax nations such as The Bahamas and other international financial centres (IFCs).

Pascal Saint-Amans, head of tax administration at the OECD, told the UK’s Guardian newspaper: “What the US has put on the table … [is saying] we want the rest of the world to follow, we kill tax havens. The game is over. Let’s move to a minimum agreed level.”