The Tribune

THE Bahamas was yesterday urged to see its European Union (EU) pledges through to completion, a well-known QC arguing that corporate taxation is “not inevitable”.

Brian Moree QC, senior partner at McKinney, Bancroft & Hughes, told Tribune Business that the Bahamas’ seemingly imminent removal from the EU ‘blacklist’ was just the “first step” in a long-running process that must be completed by year-end to address the 28-nation bloc’s concerns.

Emphasising that the Bahamas could not afford to become complacent, Mr Moree nevertheless suggested this nation’s likely delisting would boost financial services industry and investor confidence, and mitigate “any fall-out” from its March 13 ‘blacklist’ inclusion.

Backing arguments that the introduction of corporate taxation is unnecessary to appease the EU, Mr Moree said its implementation should “not be accepted as inevitable”.

Should the Bahamas ultimately decide to go this route, he argued that corporate taxation should be adopted “on its merits” for the Bahamian economy and not as a “reaction” to external pressures on this nation.

Speaking after K P Turnquest, the Deputy Prime Minister, revealed EU officials had confirmed the Bahamas had been recommended for delisting, Mr Moree expressed hope this would occur “speedily”.

He said: “I think the removal of the Bahamas from the ‘blacklist’ is extremely important for the Bahamas in terms of our reputation as a premier, well-regarded, fully compliant international financial centre (IFC).

“The removal of the Bahamas should reassure any of the multinational banks, financial institutions and other companies doing business in this jurisdiction that the Government is committed to fully complying with international standards. It should also ameliorate any fall-out from the earlier blacklisting.”

Mr Turnquest on Wednesday expressed optimism that the Bahamas will escape the ‘blacklist’ no later than May 25 - the day when the EU’s Economic and Financial Affairs Council (ECOFIN) should meet to ratify the delisting recommendation made by officials on their Code of Conduct Group.

Tribune Business exclusively revealed last week the Government’s hope that the Bahamas, if not delisted at the Group’s April 12 meeting, it would make significant progress towards escaping the nine-nation strong EU ‘blacklist’ - a wish that appears, at least in part, to have been granted.

The Bahamas’ immediate fate now rests in the hands of ECOFIN’s members. But, beyond the delisting, this nation has until December 31, 2018, to implement measures that address the EU’s concerns.

Should it fail to do so, the Bahamas’ potential ‘blacklist’ escape could only be a temporary reprieve if it fails to deliver on these commitments.

This was acknowledged by Mr Moree, who told Tribune Business: “It’s [the delisting] the first step in a continuous process which has to be completed before the end of this year.

“I would just mention that it is obvious to everyone involved in the process that we’ve still got a great deal of work to be done to address the issues concerning ‘economic presence’ and the BEPS initiative, and it is important for us as a country to formulate and implement policies to address these matters.”

The EU formally ‘blacklisted’ the Bahamas on March 13, justifying its decision on the basis that it had not received a sufficiently ‘high level political’ commitment to address concerns that this nation’s corporate vehicles could be used for tax avoidance purposes.

In particular, the EU said there is nothing that requires Bahamas-domiciled entities to maintain a physical presence, or conduct real business activities, within the jurisdiction. The absence of such ‘economic substance’, it argued, could allow multinational entities to artificially shift profits and revenues from other countries to the Bahamas in a bid to avoid taxes in those jurisdictions.

The EU was also exercised by the existence of ‘ring fencing’, or preferential tax regimes for non-resident entities and foreign investors, which it also wants to see the Bahamas eliminate.

Mr Turnquest told Tribune Business that the Government plans to address the EU’s ‘economic substance’ and ‘ring fencing’ concerns through legislation requiring companies to have a physical presence in this jurisdiction, rather than through the implementation of any corporate taxation.

Central to the Government’s legislative response to the EU is the Multinational Entities Financial Reporting Bill, which seeks to eliminate ‘ring fencing’ and provides the Minister of Finance with the option of implementing corporate taxation on a host of financial services products in a manner and time of his choosing.

The same Bill also tackles the country-by-country profit/loss reporting required by the Organisation for Economic Co-Operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) initiative.

Mr Moree told Tribune Business that the potential introduction of corporate taxation needed to be handled in “a thoughtful and careful way”, adding: “It should not be regarded as inevitable.

“I don’t think it should be accepted as a given that corporate taxation is inevitable. This is not necessarily required to solve this problem [with the EU].”

He continued: “We have to continue the process, meet our deadlines, develop policies to address these issues and see it through to the finish.

“Corporate taxation should not be viewed as inevitable; it needs to be considered in the context of the Bahamian economy and its people. Whether or not we should do it, it should be decided on its merits and not merely a reaction to some development that has occurred.”

Arinthia Komolafe, the Democratic National Alliance’s (DNA) deputy leader, yesterday welcomed the Bahamas’ imminent delisting but called on it to develop a long-term strategy that sheds the ‘tax haven’ label.

“The short period of time between the inclusion of the Bahamas on the infamous blacklist and the recommendation for the Bahamas’ removal suggests that we ought not to have been placed on the list in the first place,” she said.

“The impact on our nation’s reputation because of the EU’s action cannot be quantified or ascertained. However, we are optimistic that this will also serve as a wake-up call to the Government to ensure that there is no miscommunication or inadequate responses to requests for information in future.”

Mrs Komolafe called for the Bahamas to “look beyond” the ‘blacklisting’ and EU’s December 31 deadline to develop a growth plan for the financial services industry.

“We cannot always be in a reactive mode to international pressures on our financial services industry,” she said. “Rather, we must chart our own course for the future. The ever-changing goal posts of international agencies and groupings demand that our focus is much more than avoiding or being removed from one list after the other.

“It is time to embark on initiatives for our own sake and place us on a path to progress and prosperity. These initiatives must involve a deliberate strategy to shed the tax haven label currently attached to the Bahamas.”