The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

The Attorney General says The Bahamas is “on track” to address the deficiencies that led to its renewed blacklisting by the European Union (EU) with the 27-country bloc set to “review” this nation’s progress in August.

Ryan Pinder KC, speaking on the sidelines of the Society of Trust and Estate Practitioners (STEP) Bahamas conference last week, indicated the Government is hoping The Bahamas will satisfy the EU’s concerns such that it is delisted in October 2023. That is the next scheduled date for the EU to assess the countries it has cited for allegedly being non-cooperative in its fight against tax avoidance and evasion.

“The next round of review is later this year,” Mr Pinder said. “I think they come in in August and make a determination in October. We are well on track to putting in a new portal and new implementation of the economic substance reporting.

“Unfortunately, the prior attempt was not adequate and, coupled with COVID and other challenges the countries had, we just were not able to comply with the requirements of implementation. It’s not a legal issue. It’s an implementation issue, and we believe that the new portal we’re getting that’s provided by BDO, which is the same company that does our beneficial ownership reporting portal, will result in us being compliant.”

The EU blacklisted The Bahamas in October 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. The EU, which reviews its tax non-cooperation initiative twice yearly, kept The Bahamas on its blacklist when the bloc met last month to assess it and other cited nations.

“The Bahamas facilitates offshore structures and arrangements aimed at attracting profits without real economic substance by failing to take all necessary actions to ensure the effective implementation of substance requirements,” the EU’s February 14, 2023, summary concluded.

Given that escaping the EU’s listing involves a process to remedy identified deficiencies, it was always unrealistic to expect that The Bahamas would be delisted in February, thus making October the likely first opportunity for this nation to escape.

Mr Pinder told the STEP Bahamas conference: “The European Union, through its Code of Conduct Group, performs annual monitoring of the effective implementation of substance requirements under EU list criterion 2.2.

“Shortly after the general election [in September 2021], the Government received notice of certain deficiencies related to the implementation of the Commercial Entities Substance Requirements Act 2018 and the economic substance reporting that were found in the annual monitoring for 2019 and 2020.

“Our administration has worked diligently to satisfy the concerns of the European Union. However, not all deficiencies could be addressed before the determination of our review. As we know, the European Union added The Bahamas to its list of non-cooperative jurisdictions.”

Tribune Business previously reported that deficiencies with the economic substance reporting portal, and an inability to test, analyse and inspect the data, was the critical factor behind the EU blacklisting. Mr Pinder told the STEP conference: “To give some context, the deficiencies primarily lie in the reporting portal and methodology that was put in place.

“As you might know, the former administration 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 and implementation was challenged given the shut downs related to the pandemic and the lack of human capital working at the time.

“To remedy this situation we thought it more appropriate to start from scratch and have an entirely new reporting portal and framework put in place. We have solicited a number of proposals for a separate substance reporting portal and platform that has been designed for the specific purpose, much like what you experience with the BOSS system and beneficial ownership reporting,” he continued.

“We have decided on BDO to develop a new portal for economic substance reporting. This is the same company who implemented and manages the BOSS system, which has been a reliable and compliant system for beneficial ownership registry. We believe this is the proper way to do it and be in compliance with what is expected of us for the effective implementation of the substance reporting regime.

“We also look to put in place a framework to allow us to verify, whether through inspection or audit or some other acceptable method, the accuracy of the data being used in the substance reporting. This is also an important remediation element. We look to be in a position to be re-rated by the EU as compliant later this year.”

Ministers in the Minnis administration have previously refuted assertions that nothing was done to correct these deficiencies. They have 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.

Prime Minister Philip Davis KC also signed three letters that 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 deadline.