• BFSB/AIBT say it violates tax-setting sovereignty

• Joint letter argues tax competition end misguided

• Argues focus should be substance, transfer pricing

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamian financial services industry is calling for the 15 percent minimum global corporate income tax to be "revisited" as it violates the sovereign right of nations to set their own tax systems and rates.

The Bahamas Financial Services Board (BFSB), and the Association of International Banks and Trust Companies (AIBT), in a joint March 14, 2024, letter to the committee drafting the proposed United Nations (UN) convention on international tax co-operation argued that it was irrelevant if the tax rate was "0 percent or 15 percent" so long as corporate entities were doing real business and abiding by key rules.

The letter, signed by Niekia Horton, the BFSB's chief executive and executive director, and Bruno Roberts, the AIBT's chairman, said the focus should be placed on establishing common "substance/presence rules" to ensure corporate entities are doing real business in the territories where they operate.

And they also called for uniform "transfer pricing rules", so that multinational groups cannot avoid/evade their tax obligations in one jurisdiction by transferring funds to a subsidiary located in another country through purporting to purchase goods or services from it.

The joint BFSB/AIBT letter, which was copied to Ryan Pinder KC, the attorney general, in his capacity as The Bahamas' and Caribbean representative on the UN committee, effectively argued that focusing on establishing a uniform tax system and rate for all countries as a counter to avoidance and evasion by large multinationals was misplaced and would eliminate tax competition between nations.

"Revisit the minimum global corporate tax requirement, as it infringes on sovereign nations' autonomy to establish and manage their own tax systems," the two largest advocacy groups in the Bahamian financial services industry argued.

"Alternatively, international tax rules should focus on substance presence rules and standardised transfer pricing rules to prevent tax evasion through profit shifting. If entities operate in substance and form within a country, that country's tax rules should apply, whether 0 percent or 15 percent."

The Bahamian financial services industry's position could have implications for the Government's push to give effect to the G-20/OECD-led 15 percent minimum global corporate tax initiative via implementation of the so-called Qualified Domestic Minimum Top-Up Tax.

This would enable The Bahamas to fulfill its commitments to the G-20/OECD initiative through levying the 15 percent minimum on only those local corporate entities that are part of multinational groups generating more than 750m euros per annum in annual turnover.

The Government is hoping to release draft legislation that would implement, and give effect, to the tax when the 2024-2025 Budget is presented to the House of Assembly at end-May. Consultation and feedback will then take place over the summer amid hopes that a final version of the Bill will then be presented to Parliament when it returns from the summer recess.

Prime Minister Philip Davis KC said The Bahamas could earn some $140m in new revenue per annum once the tax has been implemented and in place for a full year. If The Bahamas elects not to levy the 15 percent minimum corporate income tax, earnings that could have been taxed in this nation will instead be subjected to this treatment when they are repatriated to their parent, thus causing it to lose major revenue.

Elsewhere, the joint BFSB/AIBT letter called for streamlined cross-border tax reporting and information sharing as well as "transparent and fair" double taxation rules so that the same earnings/profits are not taxed heavily twice by different jurisdictions.

"Consolidate the requirements/rules for reporting and sharing tax information across borders," the Bahamian financial services groups argued. "The various obligations imposed by CFC (controlled foreign company) rules, FATCA, CRS, TIEAs etc are onerous and costly to manage.

"Standardised reporting and information-sharing mechanisms would improve the handling of tax matters and mitigate the exploitation of cross-border loopholes...... Formulate transparent and fair double taxation rules to avoid conflicts and ensure that businesses and individuals are not subject to taxation on the same income in multiple jurisdictions."

The BFSB and AIBT added that, in drawing up a new international tax co-operation framework, the UN committee should "provide allowances/grants for capacity building and maintenance, technical assistance and knowledge transfer to empower smaller nations to manage their tax systems better.

"Include tax policies that contribute to less developed nations' economic growth and social development to ensure sustainable development goals are achieved to a global minimum standard," they added. "Establish rules for resolving tax disputes between countries. Provide clear guidelines on a protocol for assessing violations and a documented schedule of fines and penalties.

"While the ad-hoc committee is developing the draft terms of reference consider establishing a 'holding' period for countries that have indicated a willingness to participate in a UN Tax Convention. This would help streamline the adoption of new international tax standards and minimise any duplication of efforts that countries may experience as a result of competing international tax rules from different international bodies...

"The above-noted recommendations will aid in the continuing development of the financial services industry of small and developing island nations like The Bahamas. If implemented, they offer the opportunity for fair and equitable treatment in the global community."

The Government, in its own separate feedback to the proposed UN framework on international tax co-operation, agreed that any convention must "acknowledge the right of countries to determine their own tax policies" although it made no mention of the 15 percent minimum global corporate tax. It also called for the convention to uphold the principles of fair tax competition between nations.

"Tax competition is a reality in today's global economy, and while it can be beneficial for economic growth and development it can also create an uneven playing field and lead to harmful tax practices," the Government's feedback said. "Co-operation should recognise the benefits of tax competition while also addressing any potential negative consequences.....

"The Convention should initiate a process that increases the legitimacy, stability, resilience and fairness of international tax rules in the common interest of all relevant stakeholders. It should establish the legal basis for a fully inclusive and more effective international tax co-operation in terms of substance and process, giving consideration to the value of coherent and consistent international tax rules while also respecting the tax sovereignty of each member state, the unique challenges faced by The Commonwealth of The Bahamas and other developing countries of the global south."