The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A KPMG tax expert has urged the Government to "articulate their vision", warning that uncertainty over corporate taxation's introduction "helps no business".

John Riva, head of tax for the accounting firm's 'islands group', which includes the Bahamas, said tax reform needed to be considered in "a more measured manner" than a hasty rush to secure the Bahamas' escape from the European Union's (EU) 'blacklist'.

'It's important for both the Deputy Prime Minister and Prime Minister to come out and articulate their vision," he told Tribune Business. "The rumours on introducing corporate tax help no business. It doesn't help government, it doesn't help industry.

"I think it's right for the Government to reconsider the way it raises taxes, and I think that's appropriate, but it needs to do that in a more measured manner and over time, and needs to bring industry with it."

Mr Riva's comments allude to the great uncertainty caused by the Multinational Entities Financial Reporting Bill, the focus of the Government's legislative response to the Bahamas' EU 'blacklisting', which paves the way for corporate taxation to be imposed on a wide range of financial services products.

This is designed to address the EU's concerns over 'ring fencing', or the provision of 'preferential' tax regimes for non-resident entities and foreigners, but its provisions impose wide-ranging changes that eliminate much of the attraction for using International Business Companies (IBCs).

These have been among the Bahamas' most popular financial services products, due to their flexibility, 'light touch' regulation and the fact that 'mind and management' can be located outside this nation - only a local office and registered agent are required.

But several financial services executives, speaking to Tribune Business on condition of anonymity, said the Government - in its rush to eliminate 'ring fencing' - had effectively eliminated all the differences between IBCs and domestic companies by repealing all the tax incentives and exemptions granted to the former.

"I understand the importance of getting off the blacklist, but you don't need to throw away the entire jurisdiction," one told this newspaper. "It [the Bill] is very seriously going to marginalise the IBC product.

"In effect, you're repealing the product and coming up with a Companies Act company. You're marginalising the distinction to the point where they'll [IBCs] have no market utilisation." Tribune Business understands the Government, though, feels it has no choice but to move in this direction because IBCs are the principal target of the EU's 'economic substance' concerns.

Other IBC-related concerns involve the wholesale repeal, via the Multinational Entities Financial Reporting Bill, of their Stamp Duty concessions and the 20-year promise of exemptions from a wide range of taxes imposed on domestic companies.

Mr Riva, who was speaking to Tribune Business after addressing a breakfast seminar, suggested that the Bahamas' negotiate a 'grandfather' clause with the EU for existing IBCs to ensure they could enjoy the tax benefits promised to them.

A local attorney, speaking on condition of anonymity, suggested yesterday that the Government would expose itself to potential legal action should it not negotiate such a clause. They argued that existing IBCs' beneficial owners had "a legitimate expectation" they would enjoy existing benefits for the full 20-year term, and had planned their business strategies on this.

And they warned that the Bill's provisions, allowing the Minister of Finance to introduce corporate taxation of the type, rate, structure and time of his choosing, was "very dangerous" due to the market uncertainty that this has - and will continue - to cause.

Mr Riva, meanwhile, reiterated that the EU did not require the Bahamas to implement corporate taxation to escape its 'blacklist'. He said it was a distinct, separate issue from the 28-nation bloc's main concern - a lack of 'economic substance', which could allow multinational companies to avoid tax in other countries by artificially shifting revenues/profits to the Bahamas despite having no physical presence or business activities here.

"I think the mood music has to change," he told Tribune Business. "The Bahamas shouldn't be concerned about this. It's something [the EU blacklist] that needs urgent attention, but the important thing is implementation of substance legislation and understanding how that impacts various industries.

"Given the size of the Bahamas, that should be something you're able to accomplish. If, for different reasons, you want to change or raise taxes, then you should consider that. There's absolutely no link between the blacklist and the introduction of a corporate tax. It's not the solution for that.

"It might be a solution to dealing with the long-term economic prospects of the Bahamas, but without undertaking the impact analysis you can't actually say. What's needed is a long-term vision of what type of industry and economy the Bahamas has in five to 10 years, articulating that vision and having appropriate plans to fulfill that vision. That's not something you can do in a weekend."

Mr Riva emphasised that any major Bahamian fiscal policy changes needed to "go through due process", and be debated in Parliament supported by the necessary facts and data. He reminded that the Bahamas had until year-end 2018 to eliminate 'ring fencing' as the EU desired, "not the end of the week".

"I think it's appropriate for the Government to provide answers with this Bill, and what they're seeking to achieve and how it will be administered and enforced," Mr Riva said of the proposed legislation.

Bahamian financial industry sources, meanwhile, expressed concerns over whether the Multinational Entities Financial Reporting Bill is "a fait accompli" given that the Government had admitted to showing it to the EU first before releasing it for local industry consultation.

Several contacts, speaking on condition of anonymity, questioned whether providing any feedback was "a waste of time" given that the EU may now be expecting the legislation to be passed 'as is' if the Bahamas is to be removed from the 'blacklist'.