The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Bahamas was yesterday urged to negotiate a 'grandfathering' clause with the European Union (EU) over the 20-year tax exemptions for existing IBCs.

Paul Riva, KPMG's head of tax for its 'islands group', including the Bahamas, suggested that the EU would be open to such an approach if this nation put forward a "strong legal argument" for why this was essential.

The Bahamas' legislative response to its 'blacklisting' by the EU, the Multinational Entities Financial Reporting Bill, repeals the existing tax incentives regime for International Business Companies (IBCs) in a bid to eliminate 'ring fencing' - a key demand of the 28-nation bloc.

Among the provisions removed is the 'guarantee' that an IBC will enjoy multiple tax incentives for the first 20 years following its incorporation, a move that threatens to cause disruption and uncertainty for both the Bahamian financial services industry and its clients.

Acknowledging that IBCs, and their beneficial owners, had "set their strategies by that" guarantee, Mr Riva said the Bahamas had a strong argument for negotiating a 'grandfathering' clause with the EU.

This would allow existing IBCs to continue enjoying the exemptions under that 20-year promise, as stipulated by the current Act, but deny them to ones incorporated after the new legislation's passage into law.

"It would be reasonable for the Bahamas to say we've given guarantees to those companies, so we'll 'grandfather' them in, but any new companies we can't," Mr Riva said.

"It's a matter of negotiating, sitting down and explaining to the [EU's] Code of Conduct Group the issue you'd have as a jurisdiction; the issue you'd have breaking that condition. You'd need to come up with a legal argument for why this would be so bad for you.

"Believe it or not, these people are reasonable. The EU is good on the rule of law. They will understand you."

The implications of the Multinational Entities Financial Reporting Bill for Bahamian-domiciled IBCs, especially the repeal of their existing tax incentives and provision for the implementation of corporate taxation, have already caused concern and uncertainty in the financial services industry.

Michael Paton, a former Bahamas Financial Services Board (BFSB) chairman, told Tribune Business earlier this week that the proposed Bill was likely to produce adverse 'unintended consequences' - especially through its repeal of the Stamp Act exemption for IBCs.

Currently, IBC tax exemptions include their freedom from Stamp Duty on transactions involving their shares, debt and security. Mr Riva yesterday suggested the Bahamas needed to assess whether this tax should be assessed on the buying/selling of shares in such companies.

Pointing to difficulties in collecting such taxes, Mr Riva added: "I can see there being a case for charging Stamp Duty on the sale of shares in companies that are rich in Bahamian property.

"Companies that don't own Bahamian land, it may be time to get rid of it. It's more likely to put people off using a Bahamian company if every time the company changes hands they have to pay Stamp Duty. You need to do the sums and figure out how much it costs [in government revenue]."