Bahamas ‘value proposition’ threat from 15% US tax plan

• Govt urged: ‘State position’ on corporate tax

• Can’t afford for financial services uncertainty

• May change ‘bottom line across the board’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A risk-management specialist is urging the government to state its position on the global minimum corporate tax rate drive in tomorrow’s budget given the threat to The Bahamas’ “value proposition”.

Hubert Edwards, principal of Next Level Solutions, a Bahamas-based corporate governance and risk management consultancy, told Tribune Business it was vital that the government provide “clarity” to the Bahamian financial services industry on how it plans to respond to an initiative that appears to be gaining increasing traction.

Speaking after the US Treasury Department last week proposed a 15 percent minimum global corporate tax rate, although it said this was “a floor” that should be pushed higher in negotiations, Mr Edwards said the push by the Biden administration in concert with high-tax European states represented a direct challenge to The Bahamas’ long-standing “no tax” business platform.

“The implication for The Bahamas is that it has the ability to fundamentally change the value proposition for financial services,” he told this newspaper. “Decisions have been made up to now on the basis of no tax.

“This has the potential to change the way we tax, and it puts pressure on the government to start thinking whether or not this will be a new regime of corporate taxation. They seem to be working in that direction, but we do not have a clear pronouncement up to now of whether the country is going to pursue that.

“We have to make a decision as to whether or not we are going to accede to the pressure in this instance, or we have some other way of moving forward without hurting the financial services industry or the economy.”

Mr Edwards said The Bahamas has traditionally relied upon the US to blunt initiatives launched by the European Union (EU) and its members, but the Biden administration is in lock-step with its counterparts across the Atlantic as part of what it views as a drive to get US multinationals - especially digital companies such as Facebook, Google and Amazon - to pay their fair share in taxes.

It is determined to prevent what it believes is the ‘offshoring’ of multi-billion revenues and profits to low-tax jurisdictions that enables such companies to minimise their tax burdens, even though such income was earned elsewhere. Together with the Europeans, the Biden administration views this as producing ‘a race to the bottom’ on tax rates in a bid to attract such corporate business.

Hence its support for a global corporate minimum tax rate to prevent such practices. “We as a country have to stand up and pay very careful attention as to how this will impact financial services and the wider economy,” Mr Edwards said of the consequences for The Bahamas.

“Especially at this time when we are facing a crisis that has affected the first prong of the economy, tourism, we cannot afford for the second prong of the economy to come under pressure. It would be disastrous.

“We don’t know where tourism is going to be. We saw what has come out of Atlantis. Atlantis is usually an early adapter, so tourism is going to be under great pressure. Financial services, though, has shown itself to be a great adapter in this environment, but this is going to be unsettling for the industry,” he added.

“We definitely need to see a position, and that’s one of the things that should be stated in the upcoming Budget. We definitely need to get some level of clarity, so there is certainty and predictability throughout the industry and persons make decisions on a solid basis.”

Mr Edwards described the fact that the US and EU appear to be going “down the same road” as “a game changer” for The Bahamas and other international financial centres (IFCs), and added: “We need to put our strategic plan in place so we can respond wisely.”

Paul Moss, president of Dominion Management Services, told Tribune Business that the US and EU offensive was “all about tax competition” and added: “They don’t want a nation like The Bahamas to have a rate that is markedly different from whatever they propose.”

Should the US and European vision become reality, Mr Moss said it would “change the bottom line across the board” as the Bahamian financial services industry would have to compete on attributes such as cost and quality of the products and services it offers. He reiterated his call for The Bahamas to get out ahead by implementing a corporate income tax designed for its own needs.

It now appears inevitable - and only a matter of time - before a minimum global corporate income tax rate emerges, with corresponding pressure on all nations to conform. The International Monetary Fund (IMF) has also backed the initiative.

The Biden administration’s move is a marked change from the stance taken by its Trump predecessor, which was more focused on allowing sovereign nations to set their own tax rates and opposed to European efforts to impose a so-called “digital tax” on US multinational giants such as Amazon, Google, Facebook and Apple.

However, the newly-elected Democratic government sees a global minimum corporate tax as critical to preventing such companies from minimising their tax burden via creative structures that shift profits and revenues to low-tax nations such as The Bahamas and other international financial centres (IFCs).

Pascal Saint-Amans, head of tax administration at the OECD, told the UK’s Guardian newspaper: “What the US has put on the table … [is saying] we want the rest of the world to follow, we kill tax havens. The game is over. Let’s move to a minimum agreed level.”

Comments

Proguing says...

Hell no ! We don’t want no Biden tax here. This would be the end of the IBCs and all related offshore business. This is the last competitive advantage that we have and we are not going to give it up to please the democrats.

Posted 25 May 2021, 2:26 p.m. Suggest removal

tribanon says...

Tell it to all those who are still suffering from a severe case of TDS. lol

Posted 25 May 2021, 4:27 p.m. Suggest removal

milesair says...

Oh, you mean Trump delusional syndrome, lol!

Posted 25 May 2021, 9:09 p.m. Suggest removal

TalRussell says...

In today's COVID climate **when all but Comrade Grocer Rupert** are at risk of failure, just about anyone can set themselves up as **the predicting principal** of her/his risk management consultancy, yes?

Posted 25 May 2021, 3:32 p.m. Suggest removal

The_Oracle says...

There will be no tax treaty until we have Like for like taxation (income, capital gains etc)
No tax treaty, no reciprocity. (shared taxation to the higher rate)
This has been coming since 2004, but as usual we are decades behind.
We are not a no tax Business platform in that business license fees are based on a % of gross. I would think the 15% would be based on net.
This is a direct challenge to the viability of many businesses, not just financial services.

Posted 25 May 2021, 6 p.m. Suggest removal

Proguing says...

There will never be tax treaties. Assume that we implement the 15% Biden corporate tax. Then we go knock on the door of the French for a tax treaty (more like beg). They will laugh in our face. Stop believing in fairy tales.

Posted 26 May 2021, 5:13 a.m. Suggest removal

Proguing says...

Breaking news: Ireland says no to the Biden minimum corporate tax.

https://news.yahoo.com/biden-global-tax…

Posted 26 May 2021, 12:34 p.m. Suggest removal

donald says...

When will it end? More taxes, more regulations. When will business and people have enough of this madness?

Posted 26 May 2021, 5:49 p.m. Suggest removal

Takenid says...

Corporate (and eventually personal income tax) are inevitable. Look at what US and EU have done to our (former) banking industry. If we are going to have to compete on financial products and quality of services etc., might as well get out while we are still marginally ahead. I wonder about service when I am standing in line at the Canadian bank I bank with for one hour or more to do a basic transaction that takes you 5 mins in any US or EU bank. Opening any account in any bank in the Bahamas takes 3 to 6 months. In the US I can open a financial account on-line in 10 minutes - can even do it from Nassau! Where do we get off thinking we are competing with that? To renew my ATM card I spent an hour in various lines at the bank after having informed myself beforehand (thankfully, otherwise I would have had to make at least 3 one hour trips to bank as with every trip the mindless clerk or bureaucrat you eventually talk to would add another document needed) that I needed 3 pieces of ID (for which the clerk had to get up and waddle over to the copier and make copies and then waddle back like it was Sunday on the beach) and I had to sign multiple documents all of which were printed and stamped and signed by clerk (they love doing that - think they are adding value) in triplicate!! I haven’t mentioned that at least 2 of 3 papers printed were torn in quarters and placed in a pile in front of me, as if the tall pile of ripped up and useless paper and mindless bureaucratic waste was a credit to the office. This is just to renew an ATM card which in the US or EU you receive in the mail (don’t get me started on the Bahamas Postal Service) a few weeks before expiration and then you activate in a few minutes by phone or online. Yea, we gonna compete real good with that? What, we ain’t good enough to get those goods and services available in other countries?
What we need to do since our financial industry is toast is to accept this and negotiate with the US and the EU accordingly. We should demand that if we conform to their standards and requirements that in return their citizens who choose to bank in our jurisdiction should be treated exactly the same as if the bank in our jurisdiction was in their national jurisdiction: reciprocity. We should also then demand of our banks that they treat and provide their customers with products and services at the same level as their US and EU counterparts. While we are at it we might also take advantage of mindful and sensible progress, get off our high arrogant horse, and dollarize our economy and currency.

Posted 26 May 2021, 10:56 p.m. Suggest removal

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