By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas was yesterday warned “it is not in the clear” despite international media reports suggesting it has escaped the European Union (EU) tax “blacklist” due to be announced today.

Branville McCartney, the former Democratic National Alliance (DNA) leader, cautioned against any premature celebration over such an outcome - both because it has yet to be officially confirmed and the fact that avoiding it has resulted in “the ruining of our financial sector”.

A Cabinet minister under the last Ingraham administration, he added that even if The Bahamas was not listed “you can bet your bottom dollar” the EU and other multinational agencies will find different means to attack this nation again given that their ultimate goal is to drive it out of the financial services business.

Mr McCartney was speaking after multiple reports coming out of the EU’s Brussels headquarters yesterday suggested that The Bahamas will not be included on its “blacklist” of countries deemed “uncooperative” in the war against global tax evasion and avoidance.

A report from Politico quoted Pierre Moscovici, the EU’s commissioner for tax, economic and financial affairs, as identifying the ten countries that should be added to the 28-nation bloc’s “blacklist” today - and The Bahamas is not among them.

Seven of these nations are alleged to have failed to live up to commitments previously given to the EU to bring their laws and regulations into line with its demands. “These are Aruba, Belize, Bermuda, Fiji, Oman, Vanuatu and Dominica,” Moscovici told Politico.

The other three nations’ tax transparency regimes are deemed by EU officials to have worsened over the past months. Moscovici identified them as Barbados, the United Arab Emirates (UAE) and the Marshall Islands. Together, these ten nations will join the five already on the “blacklist” - American Samoa, Guam, Samoa, Trinidad and Tobago, and the US Virgin Islands.

There were signs, though, that the tax “blacklist”, which has to be approved and ratified by the EU’s finance ministers, was running into political headwinds with Italy pressing the case for the UAE not to be included.

This mirrors what happened with the earlier of two EU listings which The Bahamas faced, and was included on. The dealt with anti-money laundering/counter terror financing, and this country was included among 23 states deemed to pose a “high risk” of facilitating financial crime due to deficiencies in their regulatory regimes.

The Bahamas, which was seemingly included solely because it is being monitored by the Financial Action Task Force (FATF), the global anti-money laundering standard setter, subsequently received a “reprieve” after EU member states rejected the list as arbitrary and failing to follow proper procedure, thereby leaving the bloc exposed to potential legal action.

Today’s “blacklist”, which is separate and apart from that initiative, deals with tax transparency, and especially efforts to crack down on evasion and avoidance by multinational companies that deprive nations of much-needed tax revenues.

Politico’s report, which was backed by similar articles from Reuters, indicates that the Government’s work in collaboration with the Bahamian financial services in drafting - then passing - multiple pieces of legislation to overhaul this nation’s business and regulatory regime may have paid dividends. Final confirmation, though, will only come today.

K P Turnquest, deputy prime minister, described the reports as “interesting” but declined to comment further so as to not raise expectations unnecessarily. He reaffirmed, though, that the Government “believes” that The Bahamas has done everything necessary to comply with the EU’s demands and escape the “blacklist”.

“We need to wait,” Mr Turnquest told Tribune Business yesterday. “We’ve had expectations in the past, and I’d rather ensure we don’t find ourselves commenting on it and have to eat our words.”

Mr McCartney, echoing Mr Turnquest, said that while confirmation was needed it could only be “good” for The Bahamas to avoid a “blacklist” that appears to have snared a rival international financial centre (IFC) in Bermuda and multiple other Caribbean states.

The ex-DNA leader, though, argued that The Bahamas “should not have been on the edge” of being “blacklisted” to begin with given the efforts of successive administrations to ensure it complied with the “rules and regulations” demanded by the EU and others.

“We should not have been up for consideration, quite frankly, in terms of being placed on that ‘blacklist’,” he told Tribune Business. “All that has been happening is that The Bahamas has put in place the ruining of our financial sector.

“If we’re not on the ‘blacklist’ that’s good, that’s fine. But knowing these entities and what their goal is, they’ll come up with something in short order to list us again. Being off the ‘blacklist’ doesn’t put us in the clear.....

“It’s a measure, at the end of the day, to really wipe out our financial services industry. They’re doing a damn good job of it. The bottom line is I find it difficult to see persons looking to come to The Bahamas to invest and do business financially because they [the EU] don’t want them putting money in other jurisdictions and retain all the tax money there. It’s going to be very difficult for us to fight against.”

Even the International Monetary Fund (IMF), in a paper on corporate taxation, conceded that there were difficulties with the EU’s anti-tax evasion drive. It said: “It can be difficult for non-EU members to accept, for instance, an EU listing process that imposes EU and OECD standards on non-EU members that were not involved in setting them.”

Mr MrCartney said that while it was beneficial to escape “blacklists” because of the potential adverse consequences that flow from them, he did not take any comfort “because you can bet your bottom dollar they’ll come up with something shortly to have us teetering on the edge again”.

“They have an agenda,” he added. “We want to comply but, at the end of the day, know there’s going to be a roadblock and it’s going to come to a stop. Let’s not hold our breath.

“What they’ve required this country to go through trickles down to local businesses like myself, and really puts a complete strain on doing business and, in many instances, an onerous strain in connection with their compliance demands.

“It’s bordering on the ridiculous, quite frankly, what they’re asking for. I was in a meeting with managers at my office today to deal with all these [compliance] issues. It’s bordering on the ridiculous.”

The Bahamas last year passed multiple laws that fundamentally changed the regulatory landscape and operating model for the financial services industry. The Multinational Entities Financial Reporting Act led the way to deal with the Organisation for Economic Co-Operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) initiative that is also designed to combat tax evasion.

To satisfy the EU, The Bahamas then passed the Removal of Preferential Exemptions Act to eliminate the tax breaks enjoyed by foreign investors and non-resident entities that were not available to the domestic economy.

Prominent among these incentives was the 20-year Stamp Duty exemption for International Business Companies (IBCs), the premature end to which could spark investor lawsuits, and the flat $300 Business Licence fee.

The Bahamas also passed the Commercial Entities (Substance Requirements) Act to address the EU’s demand for all nations to impose “economic substance” regimes that effectively require companies to prove they have a physical presence - and are doing “real business” - in a jurisdiction.

It wants corporate profits, revenues and assets to be taxed in the jurisdictions where they are generated. They are thus aiming to prevent companies, especially multinational corporations, from exploiting gaps in tax types, rates and rules to artificially shift profits from jurisdictions where they are generated to low or ‘no tax’ jurisdictions, thus lowering their tax bill.

The Bahamian law requires entities operating in this nation to show they have a physical presence by conducting income-generating activities here. Management and control must also reside in this country.

Headquarters operations, together with banking, insurance, fund management, financing and leasing, shipping, distribution or service center operations, and holding companies, are the business activities under the Act that must have a “substantial presence” in The Bahamas through offices and employees and be conducting “real business” activities.

While some believe these changes are another step in the slow decline of Bahamian financial services, others see the challenge as presenting an opportunity to restructure the sector to generate increased business growth and job creation.