By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Attorneys yesterday warned of "multiple implications" from legislative reforms that will render "void" all real estate transactions unless they are recorded as part of the Government's VAT evasion crackdown.

The Bahamian legal profession was said to be "still digesting" proposed changes to the Conveyancing and Law of Property Act that will treat all land and property deals since July 1, 2022, as of no effect if the deeds have not been brought forward for recording in the Registry of Records.

But several attorneys, speaking on condition of anonymity, argued that the reforms - if passed - could be extremely difficult to implement in practice as they potentially impact the security and rights of sellers, purchasers and mortgage lenders such as banks and other financial institutions.

The Government's move is being seen as an attempt to drive purchasers, and their attorneys, to ensure VAT due on real estate acquisitions is paid in a timely manner and in full because they will be unable to register the conveyance - and prevent it from being treated as "void" - without proof they paid the tax.

The Act's new section 40, which will repeal and replace the existing one, stipulates that "all conveyances of land, or of any interest therein, are void for the purpose of conveying or creating a legal estate unless made by deed and duly registered". However, attorneys yesterday voiced scepticism that the initiative will achieve the Government's goal of preventing real estate-related VAT evasion and avoidance.

"It definitely is a challenge in the country," one attorney said, "but the problem is no one knows how they're evading the tax. They're [the Government] shooting in the dark." They suggested that much of the avoidance and evasion stems from shifting ownership involving parent companies and corporate entities that are domiciled outside The Bahamas but sit atop structures that hold real estate in this nation.

Ownership and control changes involving this real estate are accomplished via share sale and other exchanges that take place offshore away from the Bahamian tax authorities. "Until they understand what is happening, it's foolhardy," one attorney said of the proposed reforms. "It's definitely not done by conveyance. Designing a scheme to capture trust conveyances is not going to capture it."

They explained that, by treating a real estate transaction as "void" until the deeds are recorded, the proposed Conveyancing and Law of Property Act reforms expose mortgage lenders such as banks to a period of time where they will have no security collateral for their loan.

Multiple attorneys said that, once a transaction is ready to close, the conveyance and other necessary documents have to be uploaded into the Department of Inland Revenue's system so that the correct VAT can be assessed and paid. However, in a "best case scenario", it takes at least two weeks for those documents to come back stamped prior to being recorded.

This means purchaser and lender will have no security for at least several weeks. "There's a lot of questions about how this works in reality," one attorney said. "We don't have control over much of this. We don't have control over how long it takes to get the conveyance back from the Department of Inland Revenue. Sometimes it can take one month.

"When do you actually close? Are you expected to register before you close? How do you protect the parties? If you are a mortgage lender, in the interim period what do you have? How is your capital protected? Its very well-intentioned, but there are issues. I'm assuming some clarification will be given as to how it will be implemented, particularly to avoid mischief.

"If it's a foreign purchaser, it cannot be recorded until you get a certificate of registration" from the Investments Board and Central Bank exchange control approval. "You have to be aware of multiple implications on the domestic side," the attorney added.

"There are lots of Bahamians who have done transactions where they paid to have their documents stamped and recorded, and the lawyers for whatever reason didn't record their deeds. What happens to that person? That person is out in the cold."

The Government has also sought to tighten penalties for under-reporting property transaction values so as to evade a portion of the tax due. Amendments to the VAT Act "introduce penalties for making false VAT declarations in property transfers. Where a person makes a false VAT declaration, a tiered penalty is imposed based off the percentage of the underreported amount," the Bill states.

"Where the tax payable was underreported by an amount that is greater than 50 percent, the comptroller may, having regard to the amount underreported and the circumstances, assess a penalty equal to the value of the real property and apply to the Supreme Court for an order for forfeiture of the real property," the Bill to amend the VAT Act stipulates.

If VAT is under-reported by 50 percent or more, the Bill says the fine will be 100 percent of the under-reported sum. If the under-reporting is between 25 percent to 50 percent of the sum due, the penalty is fixed at half the avoided amount, and if the under-reporting is equal to 25 percent or less then the penalty will be 25 percent of the under-reported sum.