The Tribune

By NEIL HARTNELL

and YOURI KEMP

Tribune Business Reporters

The Government and Opposition yesterday continued to trade blows over who was responsible for The Bahamas’ blacklisting by the European Union (EU) amid accusations a key reporting system “did not cut the mustard”.

Wayde Watson, the Ministry of Economic Affairs parliamentary secretary, told the House of Assembly that the Minnis administration had sought to “put a square peg in a round hole” in trying to expand the Government’s existing Revenue Management System (RMS) to handle the EU’s economic substance reporting demands.

However, Michael Pintard, the Free National Movement (FNM) leader, said The Bahamas’ listing for allegedly being non-cooperative on international tax matters resulted from the Davis administration being “late again” and failing to follow through on the strategy left behind by the former administration to address the reporting deficiencies identified by the EU.

Accusing the Government of “a dereliction of duty”, he blasted: “They failed to grasp the state of play when they arrived, and devise a proactive solution to head off this blacklisting.” However, Mr Watson, the Bain and Grant’s Town MP, who is now leading the administration’s digitisation drive, said it had been informed of “a software issue that was completely inadequate and did not meet fundamental business or reporting requirements”.

The Commercial Entities (Substance Requirements) Act 2018 requires companies conducting “relevant activities” to confirm they are carrying out real business in The Bahamas via annual electronic filings. These companies must show they are doing real, legitimate business in a jurisdiction and are not merely brass plate, letterbox fronting entities acting to shield taxable assets and wealth from their home country authorities.

Mr Watson said the former administration expanded the existing RMS portal to receive these annual substance reporting filings, as demanded by the EU, but it was simply unable to handle the volume of work generated. “The senior officers in the ministry [of finance] expressed their concerns about the portal, expressed their concerns about the software to their then senior superiors in the Ministry of Finance,” he added.

The economic substance portal was unable to run the level of analysis and in-depth reporting sought by the EU, Mr Watson said. “It must be noted that the software did not have the features and analytical tools that provide the necessary statistics to the [OECD] Forum on Harmful Tax Practices and the EU.....

“Simply put, the RMS did not cut the mustard as required with these reporting requirements, and it was more like putting a square peg in a round hole. It’s my understanding there was no consultation informing the requirements about the software solution. Only the senior expert and a former senior official sat down in Starbucks and came up with a design and flawed solution.”

Mr Watson did not call names or explain what he meant, but added that the Government “could not leave the state of affairs as is and we are more concerned about the solution” that will enable The Bahamas to fulfill its substance reporting obligations to the EU as well as automatic tax information exchange.

He added that the search for new software had been narrowed down to two providers via “proposals considered more appropriate for The Bahamas’ needs”. While data will be stored in the cloud, it will be held via a Bahamas-based provider so as not to infringe data protection laws.

However, Kwasi Thompson, who was minister of state for finance in the former Minnis administration, argued that the Government made a “critical mistake” in December 2021 by releasing Stephen Coakley-Wells, who was its key adviser on tax-related matters and knew of the EU deadlines, demands and what was needed to address the substance reporting deficiencies.

And he pointed to recent comments by Simon Wilson, the Ministry of Finance’s financial secretary, who said the Government needs to invest $4m-$5m in a new software system to address these woes as a sign that the Government failed to follow through on the strategy its predecessor left in place to avoid the EU blacklist. He queried why only now, after the event has happened, is the Government talking about new software.

Tribune Business also previously revealed that the Prime Minister signed three letters promising the EU that The Bahamas would address - within the required deadline - the very concerns that have resulted in the country’s blacklisting. Philip Davis KC signed three separate letters over a six-week period between December 15, 2021, and January 26, 2022, pledging that The Bahamas will resolve the 27-nation bloc’s issues over “economic substance” and tax reporting.

This suggests that either someone underestimated the work required or failed to follow through. Mr Thompson charged: “The question now, and we have to ask, is that in September of 2021, right after the election… the technical advisors advised the Government, here is a proposal, or here is what is being proposed for us to change in order for us to become compliant. September of 2021. 

“You had a deadline of March/April 2022 to become compliant. So, if you had acted in September, October, November, December, if you had acted you would have been able to amend, change, upgrade, overhaul the computer system in order to ensure that you were ready for the March or April deadline. I’m also advised that in February 2022 there was an expectation that March/April we were not going to meet the deadline. So there was an extension to September 2022.” 

The former minister of state for finance added: “We have to ask the question: Had the Government acted in September, had they acted in October, had they acted in November, would we still have been blacklisted? What we must press or ask for is if you knew in September 2021, if you knew, you were advised that this needed to happen, why is it that we are only now in October 2022 purchasing the new application?”