The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Private sector representatives yesterday warned that the Government's 'piercing of the corporate veil' to force tax compliance could "place businesses in jeopardy".

Edison Sumner, the Bahamas Chamber of Commerce and Employers Confederation's (BCCEC) chief executive, confirmed to Tribune Business there had been complaints from businesses over the Government's tactic of withholding essential permits/approvals until their shareholders settled tax liabilities owed in a personal capacity.

Mr Sumner said this was not a practice the Chamber "necessarily agrees with", and it would "have to take up" the matter with the Minnis administration during talks scheduled to take place over the next several weeks.

He was backed by the Chamber's chairman, Michael Maura, who questioned whether it was "appropriate" for different government agencies to act as "tax policemen" for their counterparts when there was nothing in law empowering them to do so.

He warned that holding a business 'hostage' until an individual shareholder settled their personal tax liabilities could "jeopardise" the company's future, and that of its employees, by denying it the permits it needs to conduct normal commerce. The Chamber duo spoke out after Tribune Business was contacted by Mike Lightbourn, Coldwell Banker Lightbourn Realty's president, who revealed that his firm had been unable to obtain exchange control approvals and Tax Compliance Certificates (TCCs) because of alleged personal real property tax liabilities associated with land he does not own. "They're withholding a TCC because they say I owe property tax for some property which I don't own," Mr Lightbourn told this newspaper. "I'm not the only one; loads of people have that issue.

"I also can't get exchange control approval because they say I owe property tax. It doesn't have a damn thing to do with exchange control. I'm not able to get exchange control clearance, and I can't get a Tax Compliance Certificate for a property I'm selling because I owe property tax elsewhere supposedly, so the sale can't close. It's all over the place."

The 'cross-referencing' between government departments is part of a strategy to enhance enforcement/compliance, and crack down on tax cheats and avoiders, by denying essential permits such as TCCs, National Insurance Board (NIB) 'letters of good standing', and exchange control permission.

Without such permits, the business interests of tax defaulters will grind to a halt through an inability to renew Business Licences and other certificates essential to the smooth conduct of commerce.

It is unclear, though, whether there is any basis in law for the Government to intermingle company and personal tax liabilities by 'piercing the corporate veil' to enforce payment. And holding a business 'hostage' until its owners settle their personal tax debts could endanger its survival, increasing unemployment at the very moment the Government is desperate for increased GDP growth.

"We have heard these complaints," Mr Sumner told Tribune Business, "and I think it has something to do with the fact that if you are a shareholder of some significance in a company, and you owe taxes in your personal capacity, that is considered a liability against the company.

"They [the Government] will then withhold a certificate or licence from that company if a significant shareholder has a tax liability with the Government. It's not a policy we necessarily agree with. The Government has put it in place to ensure all companies and individuals are responsible to pay taxes to the Government."

Mr Sumner agreed that this amounted to "piercing the veil" of corporate ownership, as the Government made the issuance of TCCs and such like contingent on shareholders paying their due taxes to ensure there is "no adverse effect on the company".

"If you are in business, as we understand it, and you owe the Government for any taxes outstanding to them, whether personal tax or corporate tax, they have a right to withhold licences to you until those taxes are satisfied," he added.

"It's a policy we have to look at. There's been mixed reaction to it. It is a matter that has come up, and we are hoping we can raise it in future meetings and discussions with the Government in the course of the next several weeks. This is something we will have to take up as part of those discussions."

Mr Maura confirmed he had heard similar private sector complaints, revealing: "We have had members that have shared that, as part of the process or where you are trying to get 'certificates of good standing', TCCs, the Government seems to have gone out and looked at every contract and interest a person has to make sure that person is compliant, and they've gone past the veil of the business.

"It becomes a concern to the private sector as it seems every other department has become a police agent for every other department. We don't believe that to be appropriate."

The Chamber chairman pointed out that many companies had multiple shareholders, sometimes numbering in the hundreds and even thousands, making it unfair to penalise a firm for the 'sins' of just one person.

"You're basically placing the business in jeopardy," Mr Maura told Tribune Business. "You could have a business that has 20 shareholders, 100 shareholders. Is it right? Is it in the country's best interests?

"You jeopardise the income and future earning potential of labour as a result of going past that corporate veil with a particular shareholder who may be one person out of 10. It doesn't seem to be appropriate."

Mr Maura also revealed that "there has been a practice" where companies had had to pay disputed Value-Added Tax (VAT) systems to the Department of Inland Revenue before they are granted an appeal hearing, which he described as "just unacceptable".

He added, though, that the Government was moving to address these concerns by having timely dispute hearings. "What we've been hearing the last few months is that the Department of Inland Revenue, the Ministry of Finance, have heard the cry and are committed to working with businesses and help. That will allow everyone to get on the same page," Mr Maura said.

K P Turnquest, deputy prime minister and minister of finance, and Marlon Johnson, acting financial secretary, could not be reached for comment before press time.