Wednesday, March 13, 2019
By NEIL HARTNELL
Tribune Business Editor
A former finance minister yesterday joined calls for The Bahamas to consider implementing a low-rate corporate tax as a way to shed its long-standing “tax haven” label.
James Smith, pictured, also an ex-Central Bank governor, told Tribune Business he had floated the suggestion of a corporate income tax of “no more than 15 percent” to members of the Bahamian financial services industry at their recent Bimini summit.
Speaking after the European Union (EU) yesterday confirmed The Bahamas had avoided its “blacklist” of jurisdictions deemed “uncooperative” in the fight against global tax evasion, Mr Smith said such a tax would pave the way for this nation to enter double taxation agreements with other nations.
Such treaties have been used by the likes of Barbados to attract foreign investors and companies to establish a physical presence, and even corporate headquarters, as these firms are taxed only once - at the Caribbean nation’s lower rates - on profits and dividends repatriated to home territories such as Canada.
While implementation of a corporate tax was not required to meet the EU’s demands, Mr Smith argued that The Bahamas needed to at least study it as an option for both attracting foreign direct investment (FDI) and taking itself out of the crosshairs of the 28-nation bloc and Organisation for Economic Co-Operation and Development (OECD).
Warning that these groups were unlikely to halt their attacks, Mr Smith said: “From our point of view, and that of the other international financial centres (IFCs), it’s a question of waiting and seeing a moving of the goal posts and redefining of terms.
“They seem to have an overall objective in mind; making it difficult for IFCs to compete, and in that kind of environment the best thing we can do is monitor. If we take a victory lap today we find there’s something else coming down the chute.”
Recalling his recent appearance at the Bahamas Financial Services Board’s (BFSB) recent International Business and Finance Summit (IBFS) in Bimini, Mr Smith said he had advocated for this nation to implement a low-rate corporate tax as a means to end external perceptions that it facilitates tax avoidance and evasion by clients.
“I said: To stop being looked at as a tax haven, why not go ahead and form a corporate tax like Mauritius and enter into double tax agreements,” he told Tribune Business. “Let’s do a cost benefit analysis and determine the way to go rather than take an emotional stance that corporate taxation is bad. Possibly. Maybe. But let’s study it first.”
Mr Smith, in his Bimini remarks, agreed that “the pressure from the OECD and other countries is unlikely to let up, and therefore the survival and growth of the offshore financial services sector in The Bahamas may require a new approach”.
Outlining such a strategy, he suggested that The Bahamas “pivot away from tax avoidance structures and continue to try and meet the international standards” without being the first to do so lest it surrender any competitive advantage.
Besides focusing on the development of products and services that are non-tax related, Mr Smith said The Bahamas needed to explore whether implementation of a low-rate corporate income tax would generate net positive economic benefits for this nation.
With the OECD’s Common Reporting Standard (CRS) having “almost made tax evasion impossible”, he added: “The old mantra of no corporate tax in The Bahamas should be revisited with a view to examining if there are any net positive economic benefits to introducing a small corporate tax (no more than 15 percent like other IFCs) on both resident and non-resident entities, while at the same time entering into strategic double taxation avoidance treaties with selected countries using the OECD model.”
Paul Moss, president of Dominion Management Services, one of the relatively few Bahamian-owned providers in the international financial services segment, yesterday reiterated his previous calls for this nation to introduce corporate income taxation.
“To be quite honest with you, unless there’s a real change in the way we look after our business and do taxation in this country it’s going to be a problem for us,” he told Tribune Business. “We need to be more strategic in how we look at ourselves.
“We’ve been described in the past as a tax haven. We’ve done nothing to stop that. We need to look at corporate taxation and reach agreements with other countries for double taxation treaties. We have to lead and form alliances with other IFCs so we have respect from the OECD and other groups coming to us.
“We’re always fighting in the dark. They know we’re small, weak and vulnerable.... We’re not being aggressive in defending our position and fighting, standing up for what we believe in. That’s a problem. We’re always capitulating and they see us as being weak. We keep on giving up more than we’re asked to do, and I don’t think that’s a recipe for success; that’s a recipe for disaster.”
Mr Moss warned that unless The Bahamas became more strategic and proactive, the financial services industry faces “a slow grind, a death walk, a walk on the plank, and we are in complete unison with the EU”.