The Tribune

By FAY SIMMONS

TRIBUNE Business Reporter

jsimmons@tribunemedia.net

BAHAMIAN businesses can no longer treat taxation as a secondary consideration in their operations, with KPMG executives yesterday warning the country's expanding tax framework and international compliance obligations are making the issue a key factor in business structuring and transactions.

Patricia Jackson, KPMG Bahamas' director of tax, said the country's domestic tax environment has undergone significant changes since the introduction of VAT in 2015, with businesses now facing a broader range of tax obligations and increased scrutiny from the Department of Inland Revenue (DIR).

“Tax can no longer be something which is not factored into every single business, and also in terms of individuals' environment,” she said.

Ms Jackson said VAT's introduction marked the beginning of a series of changes to The Bahamas’ tax administration framework, including the centralisation of revenue collection under the DIR, the expansion of tax audits and the introduction of tax compliance certificates (TCCs).

The Government has since expanded the domestic tax framework to include VAT, Business Licence fees, real property tax, Stamp duty, condo hotel tax and the Domestic Minimum Top-up Tax (DMTT), while the DIR has assumed an increasingly important role in revenue collection and enforcement.

Ms Jackson said businesses must now account for taxation in their structuring, transactions and day-to-day operations, warning that audits by the DIR could have significant implications for companies and other entities. “We have to factor in tax within structuring. We have to factor in tax within the transactions, day-to-day operations,” she said.

The changing domestic environment is also unfolding against mounting international pressure for greater tax transparency, with The Bahamas required to maintain compliance with standards established by the Organisation for Economic Co-Operation and Development (OECD) and the European Union (EU).

Tomas Machado, KPMG Bahamas' partner and head of tax, said the international tax environment has shifted considerably over the past three decades, moving away from the traditional financial services model centred on low or no direct taxation, confidentiality and limited information exchange.

He said The Bahamas and other international financial centres have had to continually adapt to new reporting and compliance requirements, including the Foreign Account Tax Compliance Act (FATCA), the Common Reporting Standard (CRS) and economic substance rules.

Mr Machado said the requirements extend beyond the introduction of legislation, placing significant demands on the public and private sectors to establish the systems, processes and personnel needed to ensure compliance.

“A whole host of different things that require not just the people and the processes, but a significant investment in technology to make this work,” he said.

Mr Machado pointed to the OECD's reviews of jurisdictions' implementation of the CRS, noting that The Bahamas' 2022 peer review found its regime non-compliant in terms of effectiveness in practice.

Mr Machado said remediation efforts require the jurisdiction to demonstrate it can identify and monitor financial institutions, conduct annual risk assessments, enforce compliance strategies and respond to international information requests in a timely manner.

The Bahamas must also remain vigilant against the risk of being placed on the EU's list of non-cooperative jurisdictions for tax purposes, which could expose Bahamian businesses operating within EU member states to defensive tax measures.

“The fact of the matter is that if The Bahamas is blacklisted by the EU, what that means is that the EU member states will implement defensive measures against Bahamian businesses undertaking certain types of activities in the EU,” he said.

Mr Machado said potential consequences could include increased withholding taxes on certain payments, stricter controlled foreign company rules, denied deductions and restrictions on access to EU funding markets.

He warned that such measures could undermine the competitiveness of The Bahamas' financial services industry and potentially encourage businesses to relocate structures to jurisdictions viewed as more compliant.

“We need to be proactive and ensure we're off all of these lists and that we remain compliant,” he said.

The Bahamas’ adoption of the DMTT, which applies to Bahamian constituent entities within multinational groups with annual consolidated revenue of at least 750 million euros, also represents a significant development in the domestic tax landscape.

Mr Machado said implementing the global minimum tax framework requires The Bahamas to ensure its regime is functionally equivalent to international rules, while developing the infrastructure and expertise necessary to administer it.

Ms Jackson said the Government continues to balance the need to maintain The Bahamas' competitiveness as an international financial centre with domestic revenue demands and evolving international standards.

She added that the Government has also indicated plans to remove VAT from trustee services and certain property transfers to trusts involving qualifying family members, although the scope of those proposed changes will become clearer when legislation is released.

Ms Jackson said The Bahamas’ tax environment will continue to evolve, placing greater emphasis on compliance and the advisory role of accountants.

“It's a whole different world. It's the environment of transparency and sharing of information, and one in which we have to be very mindful of compliance obligations and also our advisory role to our clients,” she said.