Thursday, May 25, 2023
By Fay Simmons
Tribune Business Reporter
The Attorney General yesterday said financial services providers will have to do economic substance reporting for all entities where they act as the registered agent if The Bahamas is to escape Europe's 'blacklist' this year.
Ryan Pinder KC said the change aligns with The Bahamas' reformed economic substance reporting portal and is the "only effective mechanism" to achieve a positive re-rating from the European Union (EU) when it comes to tax co-operation.
He said: “A second very material amendment is we now provide for an entity to report to its registered agent and, where that entity has no registered agent, it must report the required information to the Registrar General. The registered agent will now be mandated to make filings on behalf of the entities it manages for economic substance.
"This is a change from the current regime where the entities themselves are the responsible parties for the reporting. We are making this change to have a more efficient reporting platform that accomplishes the requirements of the EU and the OECD.
“I might point out we are not chartering new territory in this regard. The BVI and Barbados themselves, and other jurisdictions, mandate registered agent reporting for economic substance. Now, it might not be universal amongst all jurisdictions. But it is the approach that we're taking in line with one, the way the reporting portal is going to be set up, but secondly, if we are to achieve a positive re-rating by the end of this year this is the only effective mechanism to be able to accomplish that.”
Mr Pinder warned registered agents that, with the impending changes, they will have to interact with clients more and suggested adding a schedule into the registered agent agreements going forward. He said: “The registered agents are going to have to report on behalf of their clients, which means you're going to have to reach out to your clients. You may have to change your terms of engagement or at least look for a modification.
“Some registered agents I know have their services scheduled on to a registered agent agreement. So you may add a schedule. There's going to be some client interaction that you're going to have to do. That's why I'm telling you now and not waiting. This is an expectation of a material change and how reporting is going to be done under economic substance reporting.”
Mr Pinder said the new Commercial Entities (Substance Requirements) Bill will provide more extensive definitions to aid the financial services industry in its implementation and reporting, adding that with the amendments The Bahamas should be removed from the EU's non-cooperative list this year.
He said: “The new Bill will provide for extensive definitions to better guide the industry with respect to implementation and reporting. These definitions provide further descriptions of what relevant activities are. Such as financing and leasing.
“It is the goal that a new Bill incorporating international standards, and incorporating a reformed reporting framework, along with a new and effective reporting portal, will allow us to be removed from the list of non-cooperating jurisdictions by the next review period, which is scheduled for this fall.”
“If all goes right by the end of this calendar year we will be re-rated as a co-operative jurisdiction and not be on any EU list. Shouldn't have been there in the first place, but we're doing everything we can to ensure that we provide as compliant a framework as you can. It's going to take some work with industry. It's going to take some work with government. It's going to take some work with the regulators, but I think we can do it.”
Speaking at the Bahamas Institute of Financial Services (BIFS) conference, Mr Pinder said the Bill will eliminate a classification for passive entries that is drawing scrutiny from the EU.
He said: “The Bill revises the definition of relevant activities. This is important by deleting the category of passive holding entity. And all such entities would now be included in the equity holding entity classification. So we're deleting one of the classifications for passive entities.
“We were outliers with respect to the definition, or even a category of a passive holding entity. If you looked and benchmarked it, we were the only country that had such a designation, which certainly brought the ire and focus of the EU on having that when nobody else did.
"You never want to be outliers in this space and have something that is contrary or not in line with global best practices. So this amendment is being considered and put forward to ensure that we are compliant with global best practices," Mr Pinder added.
“We are having a transition provision for those people who have already reported in this calendar year that you will be deemed redefined as an equity holding entity, but for those who have not reported and are looking to report before the September deadline - I know most of the reporting is done in that period in any event - just be mindful that you will have a different reporting classification if you're reporting from what otherwise would have been a passive holding entity.”
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