By FAY SIMMONS
Tribune Business Editor
A CABINET minister has signalled The Bahamas could escape the European Union’s (EU) tax blacklist within weeks after it received a “passing mark” over a key issue that prevented its removal in late 2023.
Michael Halkitis, minister of economic affairs, said The Bahamas had received a “satisfactory” rating for its exchange of economic substance information from the Organisation for Economic Co-Operation and Development (OECD) arm that assesses each country’s compliance on the issue.
The OECD’s forum for harmful tax practices has now “communicated” its findings on The Bahamas to the EU’s Code of Conduct group, which determines which nations are included, remain on or are delisted from the 27-nation bloc’s tax non-cooperation blacklist.
The EU’s assessments take their cue from, or are largely governed, by the findings and recommendations from the OECD’s forum on harmful tax practices. Mr Halkitis hinted at the Government’s optimism, now that its exchange of economic substance
information has made the grade, that The Bahamas will escape the EU blacklist after it is reviewed by the Code of Conduct group later this month.
Speaking at the Prime Minister’s Office’s weekly press briefing, Mr Halkitis said The Bahamas’ upgraded and reformed economic substance reporting portal was completed in December, paving the way for this nation to meet the OECD forum’s information exchange standards.
He added: “One of the issues that prevented us from coming off the black- list last year was being able to exchange information. You might recall that we had an issue with the portal that we were using, which was not adequate. We had to replace it.
“At the end of December, we were able to have in place a portal that enabled us to do the exchanges; to exchange all the information with those countries that wanted to exchange with us. The group that oversees that process is something called the forum on harmful tax practices. Early in January, they looked at the changes that we made and gave us a passing mark of, yes, that’s satisfactory.”
Mr Halkitis said the
OECD forum has relayed these findings to the EU Code of Conduct Group, and the Government is now hopeful for a “positive outcome” as it relates to The Bahamas being removed from the black- list when the EU meets at the end of the month.
He said: “On the 7 [of February] they then communicated that information to another committee called the Code of Conduct Group of the EU. They had a meeting on February 7, which is last Wednesday. And so they got the information that we have dealt with that one out- standing matter.
“There is a meeting of the EU on February 20, which is the Tuesday after next, where they will take all of that into consideration. So we are hopeful that with all of these positive reviews, we can get a positive outcome.”
The EU blacklisted The Bahamas in October 2022 because it did not correct deficiencies in its economic substance reporting regime. This relates to the Commercial Entities (Substance Requirements) Act 2018, which 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, letter-box fronting entities acting to shield taxable assets and wealth from their home country authorities.
“The Bahamas facilitates offshore structures and arrangements aimed at attracting profits without real economic substance by failing to take all necessary actions to ensure the effective implementation of substance requirements,” the EU’s February 14, 2023, summary concluded.
The Prime Minister, in leading-off House of Assembly debate on the Commercial Entities (Sub- stance Requirements) (Amendment) Bill 2023 and the Register of Beneficial Ownership (Amendment) Bill 2023 in early December, said the reforms were a response to the latest “hard” recommendation made by OECD forum on harmful tax practices.
The OECD forum, while rating The Bahamas’ economic substance regime as ‘not harmful’ in its October 2023 review, urged this nation to bring its exchanges of information with other jurisdictions up to “the standard” required by the initiative. This, Philip Davis KC said, is what is driving the latest reforms to the economic substance reporting legislation.
The Prime Minister said complying with the OECD’s directive also requires changes to The Bahamas’ Register of Beneficial Ownership Act and regime. The thrust of the OECD recommendation is that both portals - the one for economic substance, and other for beneficial ownership registration - need to interface with one another to achieve the desired exchange of information standard.
Mr Davis explained: “Earlier this year, after several months of work, The Bahamas underwent a preliminary assessment by the [OECD] forum on harmful tax practices.
“I must inform you that during the forum on harmful tax practices’ October meeting, The Bahamas’ economic substance regime has been rated as ‘not harmful’ with a few recommendations to make key changes.
“These include soft recommendations on the verification of data and more intensive reviews of certain entities, as well as a hard recommendation urging us to ‘undertake
the required exchanges of information under the standard’,” Mr Davis added.
“While all of the recommendations are important, it is the third ‘hard’ recommendation that is crucial. The third recommendation is the reason for the imminent amendment to the Commercial Entities (Sub- stance Requirements) Act.
“It is also the reason why we are making an amendment to the Register of Beneficial Ownership Act. The key issue that both of these amendments address is the need for these portals to interface with one another to facilitate the exchange of information.”
Mr Davis said The Bahamas has promised the OECD that the reforms to meet the exchange of information standard will be enacted and in place by 2023 year-end. “We fully intend to honour that commitment. Since then, we have organised, cleaned and compiled data, and migrated it to facilitate the exchange of information between the portals,” he added.
“We are doing all that they asked us to do and, as a result, we expect that we will be removed from the EU’s blacklist as long as the goalposts are not moved once again.”