The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Deputy Prime Minister yesterday questioned how the former government "got away" with 'piercing the corporate veil' to hold businesses hostage over shareholders' personal tax liabilities.

K P Turnquest told Tribune Business he had asked Marlon Johnson, the acting financial secretary, to examine what changing a little-noticed 2016 amendment to the Financial Administration and Audit Act "will entail".

"I question that law myself," he said. "I don't see how they [the Christie administration] can do that, quite frankly, and how they got away with that. We are looking at that. I have instructed the Financial Secretary to look at amending the law and what that might entail."

That amendment, passed at the time of the 2016-2017 Budget, enables the Government to withhold Tax Compliance Certificates (TCCs) from businesses if a shareholder who has a greater than 20 per cent equity interest is non-compliant with payment of their personal taxes.

The legislation, which has been reviewed by Tribune Business, also provides for a TCC refusal where a company "with similar shareholding" - meaning that the major shareholders have similar equity interests - is not compliant with it due tax payments.

That, in effect, is designed to capture subsidiaries/affiliates who have failed to pay due taxes. The amendment's 'objects and reasons' explicitly state that it is designed "to prevent a company from receiving a Tax Compliance Certificate unless the Financial Secretary is satisfied, prior to issuing the Certificate, that any other company with similar shareholding, or the significant shareholders thereof, have fulfilled its obligations to pay monies due to the Government".

The Christie administration's intention was to clearly improve enforcement, and eliminate loopholes, by tightening the compliance web to such an extent that companies, fellow shareholders and subsidiaries/affiliates are effectively held responsible and penalised for the personal liabilities of one investor.

This, though, has come under increasing fire from the private sector as the Financial Administration and Audit Act change bites - especially when it affects companies whose major shareholders are disputing the unpaid tax liabilities the Government is associating with them.

The denial of TCCs potentially leaves companies unable to conduct business with the Government, and obtain Business Licences and a host of other essential permits. It effectively holds a company hostage, rendering them unable to conduct normal commerce, with all the dire consequences this has for its financial health and employees' jobs.

Many observers have questioned whether companies should be held liable for the personal tax liabilities of their owners, among them Mr Turnquest. He said yesterday: "The whole purpose of a company is to have Limited Liability status. I don't think it's fair for personal assets, unless cause can be made for wilful negligence or some other act, to be covered."

Mr Johnson, though, emphasised that the Department of Inland Revenue was within the law to enforce the 2016 amendment until the law was changed. "It's pretty clear and pretty explicit to create that extended level of compliance," he said.

Mr Johnson added that the Financial Administration and Audit Act would be among the laws subject to the Government's internal review of all tax laws, regulations, systems and procedures.

"This particular law, as well as all other laws and regulations, will be reviewed in the coming months," he told Tribune Business, "and then we will make recommendations to Cabinet as to whether this is consistent with the kind of business environment the Government envisions going forward."

Rick Lowe, an executive with the Nassau Institute think-tank, suggested the Financial Administration and Audit Act's 2016 amendment should be challenged in the courts by the private sector.

"It's great that they're reviewing these things, but review doesn't mean change," he told Tribune Business. "They're [the Government] certainly showing good faith in a number of areas so far, but this is very egregious, this change in the law.

"Why have a Companies Act? You have a company to limit your liability, and they have nothing to do with people personally. It's the whole reason you have a Limited Liability Company."

Suggesting that the 2016 amendment would not pass the "reasonable and fairness" test, Mr Lowe also pointed to the negative impact on companies held hostage by its requirements.

"You have the potential to disenfranchise the workers of the company, it might have to close its doors because its directors may or may not have a tax liability," Mr Lowe said.