The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Attorney General yesterday said reforms to bring The Bahamas’ economic substance regime “into line” are “not necessarily” designed to address the deficiencies that led to the country’s re-blacklisting by the European Union (EU).

Ryan Pinder KC, in messaged replies to Tribune Business, said legislation tabled yesterday in the House of Assembly was designed to update The Bahamas’ regulatory framework such that it matched the latest “standard” for corporate entities to have a real “economic presence” in a jurisdiction.

“The Bill is an amendment to reflect updates to the economic substance regime. Not necessarily addressing the uncooperative status from the EU,” he explained. The Commercial Entities (Substance Requirements) (Amendment) Bill 2023 is designed to enhance and speed-up information reporting and sharing with other jurisdictions, as well as setting out a path for non-compliant entities to remedy their deficiencies, the timeline for doing so, and sanctions that can be imposed.

“This Bill seeks to bring the Commercial Entities (Substance Requirements) Act into line with the amended standard on substantial economic presence requirements,” the legislation’s “objects and reasons” section states. “It provides for simplified exchanges of electronic returns and more efficient timelines for compliance with the Act.”

The Government body responsible for overseeing economic substance reporting, which is presently the Ministry of Finance, can now “spontaneously” or instantly exchange such reports with the home “tax residence” jurisdiction of a Bahamas-domiciled entity and its legal/beneficial owner.

And, if a Bahamian company or corporate vehicle is non-compliant with economic substance laws, it will have 28 days to remedy the defects. Failure to do so will result in an audit inspection, and if this does not happen within 21 days of the Government’s order, a $150,000 administrative fine will be levied.

If the audit uncovers further non-compliance, a notice detailing what must be corrected will be issued. The subject entity will then have 14 days to comply, and failure to do so could result in the imposition of an up to $300,000 administrative fine and, ultimately, being struck-off the Companies Register. This was said to “provide for more efficient measures for compliance with the Act”.

Mr Pinder, meanwhile, said the Government was already working on separate initiatives to secure The Bahamas’ removal from the EU’s tax blacklisting by overhauling the electronic portal that facilitates economic substance reporting by entities domiciled in this nation.

“The EU non-cooperative status is as a result of the failed implementation of the economic substance regime by the prior FNM administration,” he reiterated, pinning the blame firmly on the Minnis government. “Their implementation plan utilising Inland Revenue was a failure.

“We have agreed with a service provider to provide a new purpose-built economic substance reporting portal. The implementation and customisation is underway. The solution selected is a successful platform used throughout the region. It is designed and implemented by the same provider that put in place the beneficial ownership reporting portal, which works.”

The EU blacklisted The Bahamas because it was unable to correct deficiencies in its economic substance reporting regime prior to the April 2022 deadline. This relates to the Commercial Entities (Substance Requirements) Act 2018, which requires companies conducting “relevant activities” to confirm they are carrying out real business in The Bahamas via annual electronic filings.

These companies must show they are doing real, legitimate business in a jurisdiction and are not merely brass plate, letterbox fronting entities acting to shield taxable assets and wealth from their home country authorities. Tribune Business previously reported that deficiencies with the economic substance reporting portal, and an inability to interrogate, test, analyse and inspect the data, was the critical factor behind the EU blacklisting.

Mr Pinder, addressing the Senate at end-October 2022, said: “To give some context, the deficiencies primarily lie in the reporting portal and methodology that was put in place. The former FNM government looked to put the substance reporting through the Department of Inland Revenue framework.

“This method was ineffective and presented many problems with the actual administration of the reporting. In fact, at a point in time the reporting was being done on a manual entry basis as the entire platform was non-functional. A complete failure of implementation, which led to the blacklisting of the country by the EU.” This, though, subsequently became a political controversy.

Ministers in the former Minnis administration have previously refuted assertions that nothing was done to correct these deficiencies. They argued that the company which originally developed the portal was contracted to fix the weaknesses, and a plan was left in place prior to the September 2021 general election to remedy the EU’s concerns.

Kwasi Thompson, former minister of state for finance and others, have instead argued that the Government’s failure to follow through on this and act more rapidly led to the EU blacklisting. They have also asserted that the departure of Stephen Coakley-Wells, who headed the Ministry of Finance’s international tax unit, and the disbanding of the unit itself may have meant no one in government was focused on the EU issue.

The Government also did not explain why three letters signed by Prime Minister Philip Davis KC were sent to the EU over a six-week period between December 2021 and January 2022 promising that The Bahamas would comply with its demands by the April 2022 deadline. This suggests that either the scope of work was under-estimated or that there was an execution failure.