Wednesday, December 6, 2017
By NEIL HARTNELL
Tribune Business Editor
THE Bahamas was yesterday warned not to "rest on our laurels" after it escaped the European Union's (EU) 'blacklist' largely thanks to Hurricane Irma.
While the financial services industry and wider economy "dodged a potential bullet", this resulted from the EU Council taking pity on this nation as a result of damage inflicted during the recently-closed hurricane season.
The Council placed the Bahamas in an eight-nation grouping, along with the likes of the British Virgin Islands (BVI), Dominica and Turks & Caicos, that will be given a further 12 months to meet the EU's demands for "fairer taxation", transparency and compliance with the fight against tax avoidance by multinational companies. The Council's official 38-page statement said it had suspended "the screening process" for the Bahamas and other seven, but warned that the process will resume in February 2018 "with a view to resolving these concerns by the end of 2018".
The Bahamas has thus effectively been given a 12-month temporary reprieve during which it will have to meet the EU's demands, thanks to the devastation wrought by Category Five storms Irma and Maria in the wider Caribbean.
Some observers will see this 'benefit' as perverse, given all the grief caused by hurricanes, while others are likely to point to the EU's seeming lack of geographical knowledge, given that the Bahamas was among those nations least damaged by Irma (Ragged Island, Inagua and Acklins excepted).
Emmanuel Komolafe, the Bahamas Insurance Association's (BIA) chairman, told Tribune Business that while the entire financial services industry was yesterday "breathing a sigh of relief" at having escaped the EU 'blacklist', it recognised further reforms lay ahead.
He warned that this nation does "not have the luxury of time" to "rebrand the Bahamas" and eliminate the outside world's 'tax haven' perceptions, given that its exclusion from the EU list was "more to do with an act of nature" than its own actions.
"We've dodged a potential bullet, but any kind of celebration and pat on the back is premature," Mr Komolafe told Tribune Business. "Our exclusion from this list has little to do with what we have done so far; it's more to do with an act of nature.
"Even though we don't want hurricanes, we were spared from this listing by a hurricane. We breathe a sigh of relief straight across the industry, but shouldn't rest on our laurels and put the brakes on. There's a lot we need to do in a short period of time, and we must move quickly to address the issues."
The Government, not surprisingly, took a slightly different position yesterday as it hailed its efforts to comply with the OECD's automatic tax information exchange and Base Erosion and Profit Shifting (BEPS) for generating the "good news" of an EU 'blacklist' escape.
K P Turnquest, Deputy Prime Minister and minister of finance, acknowledged the role played by Irma and Maria in helping the Bahamas - for the moment - to avoid the adverse listing, but argued it was also evidence that the Government's proactive response to international regulatory initiatives had worked.
"You can term it that way," Mr Turnquest replied, when Tribune Business pointed out that the EU Council's release showed the Bahamas escaped by virtue of the 2017 hurricane season.
"We believe we've put in the work, and are being proactive about being a compliant jurisdiction," the Deputy Prime Minister said. "We recognise it as another interim step in the continued march to change the rules and international paradigm, but it does reference, we believe, our commitment communicated to the OECD to be co-operative with respect to the automatic exchange of tax information."
The House of Assembly will today debate a package of Bills designed to facilitate the Bahamas' switch to the multilateral approach to automatic tax information exchange. Their passage into law will enable Mr Turnquest and Brent Symonette, minister of financial services, to next week head to San Marino and sign treaties that will ensure compliance with the OECD's Common Reporting Standard (CRS), now the global standard for tax information exchange.
Compliance with the Organisation for Economic Co-Operation and Development's (OECD) CRS initiative is one of the three criteria being employed by the EU to determine whether a nation should be included on its 'blacklist'.
Another is compliance with the BEPS initiative, and Mr Turnquest said the Bahamas had signalled its intention to meet "the minimum standard" - without having to implement a corporate income tax - to the OECD.
"We are committed to signing up to the minimum standard," he told Tribune Business, "and, to the extent we are not able to comply, we have committed to doing our best to providing the required information."
The Bahamas' main obstacle on BEPS compliance is that it has no corporate income tax. One of the four 'minimum standards' it is seeking to meet is no so-called 'harmful tax practices', yet the OECD defines a corporate income tax rate of less than 10 per cent as just such a 'harmful practice'.
Many observers believe this may force the Bahamas to adopt a low-rate corporate income tax, which has already been advocated by the International Monetary Fund (IMF) and some in the financial services industry. Mr Turnquest's comments, though, indicate the Government is looking for a way around this.
Pledging that the Minnis administration was placing the financial services industry "front and centre", Mr Turnquest said: "The Government are working very hard to make sure we're ahead of any further requirements.
"We are being proactive to ensure we put the industry front and centre, and demonstrate to the international community we continue to be a well-regulated and compliant jurisdiction. We have been doing a tremendous amount of work, from the Attorney General's Office to my office and the Ministry of Financial Services, working very hard and diligently to get this done."
Mr Komolafe said that while the financial services industry had "generally breathed a sigh of relief" at escaping the EU blacklist, it knew that legislation and other issues relating to the sector needed addressing to remain excluded.
"It buys us time, the fact we were kind of spared in this current exercise, but we don't have the luxury of time to address these issues," he told Tribune Business.
"Over the last several years we've had a lot of discussion on the taxation model, and whether as part of rebranding the Bahamas as an international financial centre (IFC) we need to look at some form of corporate taxation and whether that would work in the current environment."
Mr Komolafe continued: "We all know being branded a 'tax haven' has a lot of negative connotations attached to it, and in the past we've talked about entering into double taxation agreements [via a corporate tax].
"An honest discussion needs to take place in that regard to see what we have an appetite for in that regard, and how we implement it. A lot of thought and discussion has to go into this. It's not going to be an easy one."
The BIA chairman agreed that "inclusion on a blacklist or 'grey' list is not good for the jurisdiction", while arguing that the Bahamas was "late in addressing" the OECD's BEPS initiative.
"We now have to rush it, and can't have comprehensive analysis, review and discussions with industry," he added. "The Government and industry just need to move ahead, and do things in a proper timeframe."
The EU's 'blacklist' included 17 nations, who are American Samoa, Bahrain, Barbados, Grenada, Guam, South Korea, Macau, Marshall Islands, Mongolia, Namibia, Palau, Panama, Saint Lucia, Samoa, Trinidad and Tobago, Tunisia and United Arab Emirates (UAE).
A 47-nation 'grey list' of nations that have committed to comply with EU standards, but have yet to do so, was also published. This included many of the Bahamas' Caribbean IFC rivals, including Bermuda and the Cayman Islands, plus the likes of the Isle of Man, Guernsey and Jersey.
Anti-tax avoidance campaigners yesterday criticised the EU 'blacklist' on the grounds that it is not properly backed by sanctions and their enforcement, and that numerous nations which should have been included were not.
The EU failed to include its own members, such as Ireland and Luxembourg, which groups such as Oxfam had called for, while the UK was accused of again protecting its own overseas territories. And US states such as Delaware, Nevada and Wyoming, which maintain the strict beneficial ownership anonymity the Bahamas has been forced to shed, were also excluded from the listing.