The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Deputy Prime Minister has slammed the European Union's (EU) threatened 'blacklisting' of the Bahamas as "premature", and effectively accused it of 'changing the rules of the game'.

K P Turnquest told Tribune Business that the "timeline" given by the EU for judging whether the Bahamas, and seven other hurricane-ravaged nations, were compliant with its anti-tax avoidance drive was December 2018.While the Europeans had met their promise to resume 'contacts' with this nation in February, Mr Turnquest said the Government had received no indication they were unhappy until Friday morning's "note" revealing that the Bahamas had been recommended for inclusion on their 'blacklist'.

Confirming that the Minnis administration had been "pretty much" blindsided by the EU's decision, the Deputy Prime Minister questioned whether the 28-nation bloc was applying a different standard to the Organisation for Economic Co-Operation and Development (OECD) when it came to judging if nations were in compliance with the latter's Base Erosion and Profit Shifting (BEPS) initiative.

"It's interesting to note that the timeline they gave is December 2018. This is very much premature," Mr Turnquest argued of the EU's action. "Be that as it may, we are responding positively and will meet our commitments to adjust and comply with international best practices.

"With respect to BEPS, there are two arrangements that seem to be going on here, and maybe even competing with one another. The OECD has its standard, and the EU has its standard. We have been trying to comply with both, and we thought we had responded to their concerns adequately only to have seen this note this morning."

The EU Council, in announcing its original 'blacklist' in early December 2017, placed the Bahamas in an eight-nation grouping, along with the likes of the British Virgin Islands (BVI), Dominica and Turks & Caicos, that was to be given a further 12 months to meet its demands for "fairer taxation", transparency and compliance with the fight against tax avoidance by multinational companies.

The Council's official 38-page statement said it had suspended "the screening process" for the Bahamas and other seven, but warned that the process will resume in February 2018 "with a view to resolving these concerns by the end of 2018".

This was interpreted as effectively giving the Bahamas a 12-month temporary reprieve during which it will have to meet the EU's demands, thanks to the devastation wrought by Category Five storms Irma and Maria in the wider Caribbean.

However, the EU appears to suddenly have abandoned this timetable by disclosing - via the Reuters news agency - that the Bahamas, US Virgin Islands and St Kiits and Nevis have been recommended for inclusion on its 'blacklist', with the bloc's finance ministers supposed to endorse the move tomorrow.'

"The deadline, timeline given to us was by end-2018, so we've been working towards that date," Mr Turnquest told Tribune Business, who confirmed that the EU at least adhered to its February 'contact' promise.

"They did reach out to us around the beginning of February," he confirmed. "We responded to them. They sent a follow up Thursday or Friday of last week [the week before last]. They responded with some questions and clarifications on one point in particular. We responded to them the same day, and had no indication of any other issue arising until we received this note on Friday."

Mr Turnquest also hit out at the 'leaking' of the EU's 'blacklist' decision to Reuters, a move many believe was designed to increase the pressure on the Bahamas to bow its demands.

Emphasising that the Bahamas had reacted immediately to the 'blacklisting' threat, the Deputy Prime Minister said the Government had already entered into discussions with the secretary-general of the EU's 'contact group' - the body dealing with the anti-tax avoidance issue.

"Hopefully these discussions will result in a second look at our commitments, and hopefully we'll avoid that so-called non-cooperative list," he told Tribune Business. "I think that we have demonstrated our commitment, and are proactive to respond to these matters.

"We have done what we believe demonstrates our commitment, and we believe we are on the timeline outlined and have taken the action necessary to qualify as a well-regulated jurisdiction. At this stage, until we hear something different, we ought to avoid being on any such list.

"At this stage I would only say we need not be pessimistic; let's see how the meeting on Tuesday turns out. We are on this matter, and are taking the initiative to make sure our case is put forward with communications to EU ministers. We hope and expect they will come to understand and appreciate our position."

The threatened 'blacklisting' of the Bahamas is tied directly to the OECD's BEPS initiative, as compliance with the latter is one of three criteria being employed by the EU to determine whether a country is co-operative in the fight against tax avoidance.

At its simplest, BEPS aims to ensure that the profits of multinational companies are taxed in the country where they are generated.

Multinational companies often use legitimate tax avoidance strategies to "exploit gaps and mismatches" between different countries' tax rates and rules, and "artificially shift profits" to low or 'no tax' jurisdictions despite conducting no or minimal business there. This enables them to minimise their tax exposure by paying a lower rate than they otherwise would in countries where they do conduct business.

The Bahamas has elected to meet the minimum BEPS requirement by complying with four standards: (Action 5): Countering Harmful Tax Practices; (Action 6): Treaty Shopping; (Action 13) Transfer Pricing Documentation and Country-by-Country Reporting; and (Action 14) Dispute Resolution.

Yet financial services industry sources told Tribune Business that compliance with Action 5 was especially problematic for the Bahamas. This is because the OECD considers a corporate tax rate of 10 per cent or less to be a 'harmful tax practice', but the Bahamas - with no income taxes of any kind - has an effective corporate tax rate of 'zero' because it simply does not have this system.

Therein lies the problem for the Bahamas in meeting both OECD and EU demands, and many observers believe the latter - in particular - is seeking to force this nation to implement a corporate income tax. Mr Turnquest declined to comment on this particular matter.

However, he agreed that the timing of the EU's threatened 'blacklisting' was "certainly not very helpful", given that it coincides with efforts by the Bahamian financial services industry to hit the 'reset' button.

After being battered by international regulatory initiatives for the better part of two decades, the sector - as unveiled at its recent International Business and Finance Summit (IBFS) - was finally hoping to put such turmoil behind it, and instead focus on repositioning itself and finding new growth opportunities.

Tanya McCartney, the Bahamas Financial Services Board's (BFSB) chief executive, told Tribune Business that the poorly-timed EU 'blacklisting' action was "definitely not what we want".

Acknowledging that the European action had been "looming from last year", she added: "We're always concerned, but we also know the Government is engaged in active dialogue with the EU to mitigate against any fall-out as a result of any blacklisting.

"It's not a good thing. It's definitely not what we want. This has been a matter looming for the last year. The question is have we gone far enough, and what we need to do to further satisfy them. We will continue to do what we have to do from a business perspective."

Ms McCartney said the threatened 'blacklisting' arises out of EU concerns that the Bahamas has not done enough to prevent its corporate products and structures being used by companies, which have no physical presence or substantial activities here, for tax avoidance.

"The Government is making every effort to ensure we understand how to put measures in place to prevent that," she added. "We want to commit, and commit to things we're able to deliver on efficiently.

"Obviously there is a reputational risk we would be faced with if we are 'blacklisted'. It increases our risk profile with respect to correspondent banking, so these are factors we are considering as we engage with them and take the necessary steps to avoid it if at all possible."

Many in the Bahamian financial services industry are questioning why the EU has decided to 'blacklist' the Bahamas, but only add Anguilla, the British Virgin Islands (BVI), Dominica and Antigua and Barbuda to a so-called 'grey list'. These are jurisdictions which do not respect EU anti-tax avoidance standards but have committed to change their practices.

If the Bahamas is indeed 'blacklisted', it will be added to an existing six-strong list featuring 'financial powerhouses' American Samoa, Guam, Namibia, Palau, Samoa and Trinidad and Tobago.