The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Deputy Prime Minister yesterday said the Government "trusts" the European Union (EU) will remove the Bahamas from its 'blacklist' by May 2018 at "the latest".

K P Turnquest, addressing a financial services industry briefing, said he and Brent Symonette, the minister of financial services, left Brussels last week with the understanding they had presented everything necessary to demonstrate the Bahamas' compliance with the EU's anti-tax avoidance drive.

Emphasising that the 'ball is in the EU's court', Mr Turnquest confirmed that the Government was "taking a closer look" at the Business Licence Act and other legislation to ensure the Bahamas met the 28-nation bloc's demands by the December 2018 deadline.

Mr Turnquest, in prepared remarks that were obtained by Tribune Business, described the ministerial duo's meeting with EU officials post-blacklisting as "very cordial and productive".

"We left there with positive feedback, which we trust will result in the delisting of the Bahamas by April or May 2018, the latest," he said. "From our dialogue, we understand that there are no outstanding deliverables to prevent the Bahamas from being delisted in the near future.

"In the words of the representative of the chair of the EU Code of Conduct Group, the Bahamas has done everything it needed to do and now it is the EU’s time to act." How quickly the EU acts remains to be seen, as the delisting decision is its alone, and it is unlikely to want to admit it is wrong by removing the Bahamas so quickly, as will cause it to 'lose face' and potentially undermine the credibility of its initiative.

Mr Turnquest was travelling late yesterday, and could not be reached for further comment before press time last night. However, he confirmed in yesterday morning's address that the Minnis administration was "committed to taking a closer look at our legislation" to ensure the EU's December 2018 deadline was met.

This, he added, will require a review of the Business Licence Act as well as all financial services product legislation such as the International Business Companies Act, Foundations Act and Investment Condominium (ICON) Act.

"We have completed and submitted to the EU an implementation and action plan outlining the steps to be undertaken," the Deputy Prime Minister told the financial services industry.

"We realise that our work does not stop here. As the goal posts continue to change it is evident that the Bahamas must always be vigilant of evolving international standards and best practices on matters that affect its economic, development and financial well-being.

"We need to continue to convey and demonstrate that the Bahamas is a legitimate International Financial Centre (IFC) that is transparent and adheres to best practices."

Mr Turnquest acknowledged the confusion and uncertainty caused by the Bahamas' sudden 'blacklisting', given that the Government had been sending soothing signals for some months that all was well and there was no need to worry.

Describing the EU move as "a very unfortunate turn of events", Mr Turnquest said: "You have probably been asking the same questions I have been asking myself: Like how did the Bahamas arrive at this point? What did we do or did not do? How long will the Bahamas remain on the list? What does the Government need to do to be delisted or removed from the list? And what are the repercussions of being included on the list?"

Mr Turnquest blamed the 'blacklisting' on an "apparent misunderstanding of governmental processes in the Bahamas", a likely reference to the fact that this nation's initial commitment letter, signed by Marlon Johnson, the Ministry of Finance's acting financial secretary, was not the 'high political level' demanded by the EU. He also previously told Tribune Business that it had been seeking "a specific form of words" from the Bahamas that were not received.

The Government's main legislative reform, the Multinational Entities Financial Reporting Bill 2018 that was issued yesterday for industry consultation and feedback, is designed to tackle the EU's two main concerns - 'ring fencing' and 'economic substance' - head on.

It addresses the first issue by eliminating all preferential tax regimes for foreign, non-resident entities, and combats the second by introducing a country-by-country financial reporting regime for Bahamas-domiciled entities that are part of multinational corporate empires earning more than $850 million in consolidated group revenue during their prior financial years.

Carl Bethel QC, the Attorney General, emphasised to Tribune Business yesterday that only IBCs and other Bahamian entities in structures that exceed this threshold will face such reporting requirements, as they will not apply to all.

Those corporate vehicles that fit this criteria, and are either the 'ultimate parent' or 'surrogate parent' of such a multinational network, will have to file an annual report with the Ministry of Finance that breaks down their profits and losses according to each jurisdiction where they are earned.

A 'surrogate parent' is defined as a Bahamas-resident entity designated as responsible for filing country-by-country reporting in situations where the 'ultimate parent' is not required to do this, or its 'home country' does not have a Competent Authority Agreement with this nation.

A Competent Authority Agreement is required for the Bahamas to exchange the country-by-country information, and the Bill indicates that the Government proposes to employ the same mechanism and data safeguards for achieving this as those used for automatic tax information exchange under the Common Reporting Standard (CRS).

Entities that are not the 'ultimate parent' or 'surrogate parent' in multinational networks will be required to inform the Ministry of Finance of "the identity and tax residence" of the vehicle responsible for doing the reporting by the final day of their financial year.

This notification has to be filed by May 31, 2019, if the financial reporting year begins in 2017. As for Bahamas-domiciled entities that are 'ultimate parents' or 'surrogate parents', the first country-by country report is required "no later than March 31, 2019" for financial years that began on or before May 31 this year. The different reporting timelines raised eyebrows yesterday among at least one attorney.

"This Bill seeks to provide the exchange of financial information (country-by-country reporting of profit and loss attributed to entities incorporated or resident within the Bahamas which have no substantial economic presence)," the Bill's 'objects and reasons' stated.

"This Bill seeks to meet the obligations of the Bahamas under the Base Erosion and Profit Shifting (BEPS) project to discourage non-resident entities from holding profits which do not reflect real economic activity that occurred in the Bahamas.

"The Bill provides for the reporting of entities in this jurisdiction that are apart of an [multinational] group to the Authority where such entity is the ultimate parent entity or the surrogate parent entity of that group.

"That entity is required to file a country-by -country report which contains aggregate accounting information for the group and the identification of each constituent entity of the group and the jurisdiction of its tax residence and related information."