The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s planned legal reforms pave the way for the introduction of “corporate taxation” on a wide range of Bahamian financial services products, it was revealed yesterday.

Carl Bethel QC, the Attorney General, confirmed to Tribune Business that legislation intended to address the European Union’s (EU) ‘blacklisting’ concerns was designed to give the Minister of Finance “flexibility” in determining the type of corporate taxation that will be imposed.

The Multinational Entities Financial Reporting Bill 2018, a copy of which has been obtained by this newspaper, repeals and amends numerous financial services-related laws to allow for the introduction of corporate tax “of any nature” on International Business Companies (IBCs); Foundations; Executive Entities; Exempted Limited Partnerships; and Investment Condominiums (ICONs).

The amendments to the Acts for these products include a new section on taxation, which incorporates broadly the same language for each. Besides making them “resident or non-resident for exchange control purposes”, the new language states the listed financial products will be “subject to such corporate taxation of any nature in respect of its resident or non-resident income, capital gains, shares, dividends, debt, obligations or securities, Business Licence, estate, inheritance or gift tax or other transactions related to such company as shall be prescribed by the Minister in regulations”.

The new Bill also tackles another EU concern by eliminating ‘ring fencing’, or the existence of preferential tax regimes for foreigners/non-resident entities, by enabling IBCs and the other corporate entities to conduct business in the domestic Bahamian economy as well as internationally.

Mr Bethel yesterday confirmed that corporate taxation is on the way, although the Government has yet to determine what type. He added that this will be based on advice received from consultants, who he did not name, but were hired prior to the EU’s decision to ‘blacklist’ the Bahamas last week. “In the Act, we give with respect to each entity the power for the Minister of Finance to prescribe any tax,” the Attorney General told Tribune Business. “We’re not specifying the type of taxation. That will be based on what the experts tell us. I wanted to give him complete flexibility.”

Mr Bethel added that whatever form of corporate taxation was selected, it cannot be a “nil or nominal rate”, given that this would run afoul of the Organisation for Economic Co-Operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) initiative.

“A week or so before this blacklisting came up, we had already [engaged] a private consulting firm to give advice on how to structure this issue of taxation, bearing in mind the BEPS requirement that taxation cannot be nil or nominal,” he revealed to Tribune Business.

Compliance with BEPS is key for meeting the EU’s demands, as the latter is using the OECD initiative as one of three criteria to judge whether a nation should be ‘blacklisted’ as non-cooperative in the fight against tax avoidance.

BEPS itself is designed to combat tax avoidance by multinational companies, and the Bahamas has already committed to signing up to the initiative’s Joint Inclusive Framework and meet the ‘minimum standard’.

This requires the Bahamas to comply with four criteria, one of which is countering ‘harmful tax practices’. The OECD, though, considers a corporate income tax rate of between 0-10 per cent as ‘harmful’, hence the dilemma for this country given that it currently levies no such taxation.

With the proposed ‘corporate taxation’ will be of the income variety has yet to be determined, although many inside the financial services industry - and outside - are urging the Government to seriously examine it as a tool that could help reposition the sector and wider economy.

Mr Bethel yesterday said corporate income tax was “not something entirely unknown to us in the Bahamas”, pointing to the 3 per cent and 1 per cent levies, respectively, that are currently imposed on the gross premium income of domestic and external (captive) insurance companies.

He noted that captive insurers were not included in the Bill for that very reason, and added of corporate taxation: “It’s not something that cannot be done, and keep the business here.”

The Attorney General then backed those suggesting that the introduction of corporate taxation could “open up” opportunities for the Bahamas to attract multinational companies, and their subsidiaries, to establish a physical presence in this jurisdiction and conduct real business from here.

With “real decisions” being taken in the Bahamas, Mr Bethel said this could “open up a whole new business” for this nation, pointing to the success Switzerland had enjoyed in adjusting its business model along similar lines.

“We’re being dragged, encouraged, pushed to comply with the baseline rules that European banks are being forced to comply with,” he told Tribune Business. “We’re very prepared to go there, and still feel we can compete and compete on a level playing field.

“One of the things this could open up, as it did for Switzerland, is attracting headquarters with real economic substance and presence in the jurisdiction, generating jobs, rentals, housing, employment for Bahamians, training and capacity building for Bahamians. It opens up some possibilities in the area of headquartering; substantial headquartering.”

Mr Bethel said this also held out better leadership prospects for Bahamians in these organisations, and the creation of higher-paying jobs.

Such a retooling of the Bahamas’ economic model would enable it to address the ‘economic substance’ and ‘ring fencing’ concerns used by the EU to justify its ‘blacklisting’ at the same time as repositioning for greater growth.

However, Tribune Business sources have warned that the Bahamas has to do much more than introduce corporate taxation to make this vision a reality. They say this nation has a long way to go in creating the necessary platform to attract multinational firms, with improvements to the cost and ‘ease of doing business’ key, together with swifter government processing of permit applications and the faster administration of impartial justice.

The Multinational Entities Financial Reporting Bill, meanwhile, also proposed to remove ‘ring provisions for exchange control purposes’ via its section 23. This repeals all provisions in the IBC Act and similar product legislation that “grant any tax, foreign exchange control or other benefit which are preferential to those accorded to Bahamian resident purposes”.

“The extent to which there may well be taxation on IBCs is under the ring fencing provision,” Mr Bethel told Tribune Business. “We have removed all the restrictions in the Bills... that prevented IBCs, except with permission, and those offshore entities from operating in the domestic market for exchange control purposes.”