By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas hit back over its sole tax information exchange “non-compliant” rating by the Organisation for Economic Co-Operation and Development (OECD) through arguing the number of countries with complaints was “low”.

The OECD, in its November 2022 review of The Bahamas’ compliance with the so-called Common Reporting Standard (CRS), seemingly deemed this nation non-compliant because eight other countries had “issues” with the quality of information supplied on their nationals/citizens who hold bank accounts and assets in this jurisdiction.

However, these eight countries represented just 13 percent of the 60 nations that The Bahamas is automatically exchanging tax information with under the CRS, which is the global, non-US standard for sharing such details. As a result, The Bahamas argued that those states with issues were relatively few when measured against the fact that, in 2021, some113,522 bank accounts from 5,895 institutions fell under the tax information exchange net.

The “peer review” report, which has been seen by Tribune Business, also revealed that The Bahamas had detected a scheme to “circumvent” the tax information reporting requirements mandated by Bahamian law and imposed sanctions on those responsible.

Names and details were not provided, but The Bahamas also argued that other complaints over the quality of tax information it was exchanging were overblown. In relation to one country, which purported to have rejected 50 percent of the files received from this nation, The Bahamas said it had only provided this state with two files.

As a result, it argued that an “error” with just one file resulted in this 50 percent rejection ratio, and it was hardly a large enough sample for the OECD to draw the conclusion that The Bahamas was supplying a “relatively high amount” of problematic information and that the problem had “increased over time”.

The OECD’s findings were deemed serious enough for Ryan Pinder KC, the attorney general, and Michael Halkitis, minister of economic affairs, together with their advisers to fly to Paris last August to try and persuade the group that The Bahamas should not be rated “non-compliant” with the CRS based on just one element. While they failed to change the OECD’s minds, the forum did give The Bahamas time to address the deficiencies.

The Bahamas, as shown by the “peer review, failed to meet the OECD’s requirements when it came to its financial institutions and providers “correctly conducting the due diligence and reporting procedures” on their clients for CRS purposes. While this nation met the standard required in one of the two areas reviewed, the overall rating for the “technical effectiveness” of automatic tax information exchange was deemed non-compliant.

The review found there were “fundamental issues” that The Bahamas needed to address in this area, and said: “The Bahamas was not able to confirm that it collects and monitors information on the proportion of financial accounts that are reported that include information on the Tax Identification Numbers (TINs) and/or dates of birth with respect to the individuals associated with them.

“These data points are key to exchange partners to effectively utilise the information and are important to developing an effective compliance strategy to ensure the AEOI (automatic exchange of information) standard is being effectively implemented.

“The Bahamas was also not able to confirm that it collects and monitors information on the number of undocumented accounts reported by its reporting financial institutions. This information is crucial to implementing the requirement to follow up on undocumented accounts.”

Turning to complaints by other countries over the quality of information supplied by The Bahamas, the OECD added: “More generally, many of the exchange partners that received a significant number of records from The Bahamas indicated that they achieved a success rate when matching the information received from The Bahamas with their taxpayer database that was broadly equivalent to, or better than, what they usually achieve.

“Eight exchange partners highlighted issues with respect to the information received, such as missing dates of birth, missing or invalid TINs and incomplete address data. Based on these findings it was concluded that The Bahamas is not meeting expectations in ensuring that reporting financial Institutions correctly conduct the due diligence and reporting procedures, including by having in place the required administrative compliance framework and related procedures.

“More specifically, fundamental issues have been identified including with respect to developing and implementing a complete and overarching compliance strategy that identifies the population of reporting financial institutions and verifies their compliance with due diligence and reporting obligations. The Bahamas should therefore continue its implementation process accordingly, including by addressing the recommendations made.”

The Bahamas, though, pushed back by arguing that the OECD’s concerns were overblown. It added that “most of the queries” related to information that was not mandatory under the OECD’s own guidelines, and said: ““The percentage of countries reporting issues is low relative to the total number of exchange partners.

“Another country informed The Bahamas that their matching process is in line with the OECD scheme guidelines, and the matching exercise performed and feedback given to the OECD was not intended to suggest that The Bahamas does not follow or use the OECD guidelines. The matching rates communicated are purely an indication of the challenges faced when trying to match data received, and they understand TIN is currently a contentious topic across the network.”

The Bahamas also appeared to receiving grudging praise for cracking down on efforts by some to evade the automatic tax information exchange reporting requirements. “The Bahamas has taken effective action to address circumvention of the reporting requirements when it has been detected, with reporting of the information being enforced and a penalty being applied in respect to the circumvention scheme identified,” the OECD “peer review” report said.

However, the OECD later returned to quality of information concerns. “Feedback from The Bahamas’ exchange partners did not raise any specific concerns with respect to their ability to process the information received from The Bahamas, and therefore with respect to The Bahamas’ implementation of these requirements.

“More generally, four (or 6 percent) of The Bahamas’ exchange partners reported rejecting more than 25 percent of the files received, of which one reported rejecting more than 50 percent of files received due to the technical requirements not being met. This is a relatively high amount when compared to other jurisdictions and it has increased over time. It was noted that The Bahamas is in the process of addressing the issues.

“Based on these findings it was concluded that, overall, The Bahamas is meeting expectations in relation to sorting, preparing and validating the information. It was also noted that there is room for improvement with respect to validating the data and following up with issues when files are rejected. The Bahamas is therefore encouraged to continue its implementation process accordingly, including by addressing the recommendations made.”

The Bahamas, though, said the rejection rates were not being placed in their proper context. “Please note the context of the country reporting a 50 percent rejection rate. The country reported an error message with one file out of a total of two files submitted,” it added. “An error message on one file out of a total of two files is a small sample to draw the conclusion that ‘this is a relatively high amount when compared to other jurisdictions and it has increased over time’.”

Parliament passed the Automatic Exchange of Financial Account Information (Amendment) Bill 2022 in October - a piece of legislation that it had told the OECD would become law some three months earlier in July 2022. The now-Act provides greater regulatory flexibility and oversight by enabling the Ministry of Finance to delegate its supervisory powers to the Central Bank, Securities Commission, Insurance Commission and Compliance Commission.

These regulators have now become responsible for ensuring their respective licensees and registrants comply with the requirements for automatic tax information exchange, thereby expanding their obligations but also easing the burden on the Ministry of Finance and expanding the supervisory net.