The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE DNA’s former leader yesterday accused Europe of being determined to ‘blacklist’ the Bahamas “no matter what” and force this nation to introduce a corporate income tax.

Branville McCartney, attorney and partner at the Halsbury Chambers law firm, told Tribune Business that the European Union’s (EU) decision to act against this nation - less than two weeks after the deadline it set for the Bahamas to address its concerns - indicated that it had “moved the goal posts” on this nation.

The EU had given the Bahamas until February 28, 2018, to produce an ‘action plan’ and timeline for addressing its tax avoidance and information exchange concerns, with the Government seemingly addressing the three “deficiencies” it cited through agreement signings, commitments and legislative changes passed by Parliament.

That, though, was not enough for the EU, which yesterday followed through in ‘blacklisting’ the Bahamas for not giving a “high political level” commitment to prevent its corporate vehicles and structures from being used for tax avoidance purposes.

Seizing on the timing as proof of his suspicions, Mr McCartney told Tribune Business: “Two weeks later they ‘blacklist’ us; wow, that’s quick. It goes back to my point; no matter what we do, they will start moving the bar, the goal posts, as to what we need to do. “Two weeks after they make the deadline for certain demands..... that’s very telling. That’s not right. No matter what we have done, what measures we put in place, they would have moved the goal posts. Their ultimate goal was to ‘blacklist’ us and force us to introduce a corporate income tax. That’s what they’re forcing us to do.

“No matter what we do they will move the goal posts because their intention is to blacklist us and force us to implement a corporate income tax. No matter what we do their mind is set. They [the EU] have the power and are wielding it on us. Small nations are under attack. They are wielding a big stick, and we are getting licked across the head with it and will suffer even more.”

Mr McCartney said he had sat in financial services meetings to discuss how the industry could help the Government to avoid the EU’s ‘blacklisting’ action. Suggesting that no blame could be attributed to either party, he continued: “It seems that no matter what we do, what we try to accomplish, they will try and find some excuse to ‘blacklist’ us.

“In my view, no matter what we did, they would find some way. We know what they want. They want us to introduce a corporate tax, so that any other company that comes here will have to do the necessary reporting. I’m quite sure this is something they want us to implement with respect to our tax structure.

“We need to look at our legal framework and regulations in terms of offshore companies and offshore accounts being here so we’re in a position to have the necessary checks and balances, and are not looked at as an offshore ‘tax haven’.”

The EU, in a January 26, 2018, letter to the Government suggested a ‘road map’ as to how the Bahamas could meet its demands without introducing a corporate income tax. This appears very similar to the legislation that Carl Bethel QC, the Attorney General, said his ministry was drafting, which would require country-by-country reporting of profits and losses by Bahamas-domiciled entities that are part of structures employed by multinational corporations.

However, like Mr McCartney, many observers believe the EU’s ultimate goal is to force the Bahamas to adopt a corporate income tax, and it may have little choice in the matter if it is to meet the EU’s demands.

For the Bahamas to be viewed as a ‘cooperative’ jurisdiction by the EU, it must comply with three criteria - tax transparency, ‘fair taxation’, and the Organisation for Economic Co-Operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) initiative.

The latter 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.

Tribune Business previously reported that BEPS compliance had created both uncertainty and concern within the Bahamian financial services, given that it seemed to require that this nation implement a corporate income tax.

The four standards that the Bahamas selected to meet the minimum BEPS requirement are: (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.

Financial services industry sources told Tribune Business that compliance with Action 5 was especially problematic for the Bahamas

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 pressure for this nation to adopt a corporate income tax.

Mr McCartney yesterday said he was “reluctant” to see any new or increased taxes implemented in the Bahamas, given that a still-struggling private sector would find it difficult to “withstand” the extra burden.

He agreed that the ‘road map’ suggested by the EU in terms of new regulatory and reporting requirements would be the best way around a corporate income tax in the short-term, but admitted of the EU: “They’ve got us between a rock and a hard place.

“Even though we’re a sovereign country and independent, we’re going to have to weigh the balance between what’s ultimately beneficial to the country. We’re so damn small they could stamp on us, and we can’t do anything about that. It’s unfortunate. We don’t have that power to fight.”

Mr McCartney said “the best minds in the Bahamas” needed to be called upon to devise a strategy that would enable the Bahamas to escape the EU ‘blacklist’ as rapidly as possible, and ensure this nation complied with legitimate international standards and best practices.

The ex-DNA leader also expressed concern that the EU ‘blacklisting’ could impact the Bahamas’ fragile credit rating, with Moody’s still warning that it could follow Standard & Poor’s (S&P) lead and downgrade the Bahamas to ‘junk’ status within the next 12-18 months.

The Bahamian financial services industry, and access to the international payments system, are both vital to the credit rating, and Mr McCartney also warned that the potential ‘reputational hit’ could deter foreign direct investment (FDI) capital eyeing this nation.

“A lot of things can emanate from that,” he told Tribune Business, “in terms of international companies doing business with us, FDI being hesitant to come to the Bahamas. From an international point of view we rely heavily on FDI, and this raises a question mark in terms of persons coming to invest in this country. It affects the economy, monies coming into the country, our way of life.”

Pointing to the loss of financial services business that stemmed from the 2000 ‘blacklisting’, Mr McCartney said: “Our financial services industry, our banking industry, has taken another blow.

“That is supposed to be our second industry. It has now taken a blow that is going to be equivalent to the blow we had in 2000 or even worse.”