THE Bahamas faces having to “substantially reengineer its economy at a much faster pace than ever before” to escape global ‘blacklists’, a prominent QC warned yesterday.

Brian Moree QC, senior partner at McKinney, Bancroft & Hughes, told Tribune Business that this nation’s response to the European Union/OECD initiatives in 2018 “will determine the future of the economy” for possibly the next 20 years.

He agreed that compliance with the likes of the Organisation for Economic Co-Operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) initiative would require “a serious recalibration” of the Bahamas’ tax structure, especially given the current absence of a corporate income tax.

And, echoing comments by the Attorney General, Mr Moree said the Bahamas’ exchange control regime and other ‘walls’ that separate its domestic and ‘offshore’ economies would likely need to be reworked to meet EU/OECD demands.

“Recent developments have confirmed that we in the Bahamas are currently in an extremely important era which has the potential to substantially re-engineer the economy of this country with regard to fundamental matters such as methods of taxation, types of taxation, the exchange control regime, and the current disparity between domestic business and international business,” the noted QC told Tribune Business.

“And it is apparent that not only is there likely to be significant reform, but the pace of the reform will be much faster than in the past. We are currently dealing with the Common Reporting Standard (CRS), which is a major initiative, and we will have to deal with the BEPS initiative, which will involve a serious recalibration of our tax platform.

“We are also dealing with accession to the World Trade Organisation (WTO), which will have a major impact on not only economic issues but our governance model. These are all challenging issues which I think will determine the future direction of the economy for the next decade or two.”

Mr Moree spoke out after the Prime Minister yesterday told the House of Assembly that the EU’s ‘fair taxation’ stipulation, one of the three criteria that determine whether nations will be ‘blacklisted’, had given the Government “pause” for thought.

Dr Hubert Minnis said that meeting this criteria, which requires nations to eliminate ‘preferential tax’ regimes or ‘ring fencing’, along with structures that could be exploited for tax avoidance by multinational companies, required “focused consideration” by the Bahamas.

And he revealed that the EU’s Code of Conduct Group had already warned the Government that “the absence of a corporate income tax or a nominal corporate tax structure in the Bahamas is a matter of concern”. 

Dr Minnis said the EU group had also expressed concern over “the lack of substance to some legal arrangements” in the ‘offshore’ financial services sector, thereby confirming that the Bahamas faces having to radically overhaul both its taxation and corporate economic structure.

The comments by the Prime Minister and several of his ministers, together with Mr Moree and others, he Government, indicate the Bahamas now has to make a series of critical decisions that will transform the way it does business within just a few years.

Compliance with the OECD’s BEPS initiative, and the EU’s ‘blacklisting’ criteria, requires nations to eliminate so-called ‘harmful tax practices’. One such practice is a corporate income tax rate of 10 per cent or less, and the total absence of such a structure in the Bahamas places this country in potential violation.

Thus the Bahamas is being forced towards implementation of a corporate income tax, with a rate of at least 10 per cent. Its introduction would be completely ‘alien’ to the Bahamian private sector, given that such a tax has never existed in this country’s history.

And the EU’s call for the elimination of ‘preferential tax’ regimes, such as the Bahamas’ exchange control exemptions for non-resident companies, will likely mean that this nation must tear down the walls - or ‘ring fencing’ - that separate its domestic and ‘offshore’ economies.

The end result is that the Bahamian economy may be transformed at bewildering speed, with some sources suggesting this nation could be “a completely different country” within three to five years - and possibly within one to two years.

Mr Moree said public statements by numerous Cabinet Ministers had revealed the Government’s desire to have the financial services industry and wider economy “structured and functioning in a way that is compliant with international standards”.

“I think it is widely agreed that the Bahamas cannot stand alone against these international mandates, and that we have to ensure we are fully compliant,” he added.

“The real issue is not whether we have to do these things, but how much room is there for negotiation over how we do them and when we do them, and what concessions can be obtained in the interests of the Bahamian people to ensure the continued survival of the financial services sector, specifically, and of our current economic model.”

Tribune Business sources, speaking on condition of anonymity, said the Bahamas appeared to be in “survival mode”, with the Minnis administration feeling it simply has no choice but to comply with the “new paradigm” being crafted by the EU, OECD and G-20 group of nations.

Concerns will likely be raised over the private sector’s ability to cope. However, some suggested that there was cause for “some optimism” in the face of profound change, given that the Bahamas had shown resilience in adapting to reforms previously forced upon it by the 2000 ‘blacklisting’ and subsequent international initiatives.

Mr Moree, though, warned that the reforms the Bahamas will “have to consider over the next 12 to 24 months” would impact key economic growth drivers for this country - foreign direct investment (FDI) as well as financial services.

Pointing out that higher GDP growth was directly linked to greater FDI inflows, he told Tribune Business: “All of these changes which we will have to consider over the next 12 t0 24 months are bound to impact both of these areas, and consequently we need the very best and brightest to deal with these issues.”