The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Prime Minister yesterday unveiled reforms to a package of financial services laws in a bid to prevent The Bahamas losing “a material amount” of investment funds to Brazilian tax law changes.

Philip Davis, leading-off debate in the House of Assembly on amendments to the Exempted Limited Partnership (Amendment)(No. 2) Bill 2023, the International Business Companies (Amendment) (No. 2) Bill 2023 and the Investment Condominium (Amendment) Bill 2023, explained that these all “reflect innovative structuring opportunities in response to certain tax and structuring changes in key markets, specifically Brazil”.

He added that all will keep “The Bahamas at the cutting edge in the global financial services landscape”. The need for the reforms was previously disclosed by Ryan Pinder KC, the attorney general, who had warned that The Bahamas is threatened with losing “a material amount” of its investment funds due to likely tax reforms in Brazil.

He told the Nassau Conference that the threat posed to The Bahamas’ investment condominium (ICON) product underlined his call for renewed innovation in the financial services industry to maintain its competitive advantage.

The ICON was specifically developed for the Brazilian market as an offshore structure through which investors from that country could hold and make investments while, at the same time, remaining compliant with home country tax laws. It was a version of the same product they are familiar with at home, but tax law changes are seemingly set to eliminate any advantage from using The Bahamas.

Mr Davis said the ICON “took the Latin American market by storm when it was rolled out”, and added: “One of the defining features of the Act allowed other entities to convert to ICONs. It was a strong selling point, allowing existing funds to easily adapt to take advantage of the ICON’s strengths.

“Today, in response to changes made in Brazilian legislation which can impact funds operating as ICONs if not addressed, we have proposed the three amendments before us” that allow conversion to go in the opposite direction, with ICONs able to become IBCs and exempt limited partnerships.

“We have been quick to respond to the changes in Brazil as one of our major markets. This is critical, Madam Speaker, because responsiveness is a key quality that allows our financial services product to stand out. It is a strength of ours that is now further established by this compendium of Bills,” Mr Davis added.

“These amendments demonstrate our nimbleness and ability to provide structuring alternatives for the financial services industry in response to a constantly changing global environment.” Explaining the rationale for the changes, Mr Pinder previously said: “Brazil is close to passing controlled foreign corporation laws which would eliminate any tax benefit of holding financial investments in an offshore fund.

“We could end up losing a material amount of funds in The Bahamas, with clients unwinding their structures before year-end. We enjoyed the prosperity of our innovation for ten years; it is now time to innovate again.”

He explained that the ICON was marketed “aggressively” in Brazil, resulting in a large number of such products becoming licensed as fund structures in The Bahamas. Many of the assets were held in custody locally. The ICON was created through a joint venture between the Bahamian government, the financial services industry and the Brazilian legal community to ensure it resembled the domestic investment condominiums in Brazil.

Mr Pinder said: “As a country we have worked hard over the years to develop the financial services market in Brazil. The ICON was developed jointly between The Bahamas’ government, the Bahamian financial services industry and the Brazilian legal community.

“The ICON created another influx of licensed funds originating from Brazil, providing a product that was structurally familiar to the investment condominium in Brazil. As a result of these innovations, a material amount of funds licensed in The Bahamas originated from Brazil. This is now all at risk due to tax changes that are proposed in Brazil.”