The Tribune

By ANTHONY HOWORTH

President

Euro-Caribbean Management Services

AS a manager, and sometimes a director, of more than 400 International Business Companies (IBCs) over the last 40 years, the need for the protections granted by the Constitution of the Bahamas were recognised by legal advisors around the world. This was supported by a decision of the New York Supreme Court, in a 2002 case, Reynolds v the US Internal Revenue Service, when a Canadian cigarette manufacturing company sued the US for $2 billion in damages, claiming the US had deliberately joined others in facilitating the avoidance of taxes on exports of cigarettes to Canada, such cigarettes having been taken out of Canada for later illegal importation back into the country. The court's judgment contained a strongly-worded statement that the law protected a sovereign country to take whatever action, or non-action, that was in the best interests of its own taxpayers.

The history of trusts in the Bahamas goes back to the Second World War, when the United Kingdom and British Commonwealth, at risk of being overrun by Adolf Hitler's Nazi regime, and being virtually bankrupt, were saved by the decision of US president Roosevelt to send troops and munitions to defend the Allies in Europe. The cost of this was immense, and was paid for by Britain under the lend/lease programme. After the war, the UK paid for these loans in equipment and men by giving up many of its dominions to the US.

In addition, the Labour Party, who succeeded Winston Churchill's Conservative Party, increased taxes on the wealthy by means of income and surtax of up to 90 per cent of a family's income, as well as increasing death duties. It was not long before the wealthy had to take action to defend their estates. Some were forced to sell vast areas of land to pay these death duties. Lord Astor emigrated to Monte Carlo for the same reason.

Other tax-reducing methods were to gift property to children and grandchildren, using trusts to hold the property. After a gift was made, it became free of death duties after seven years. Lawyers in London and Canada this teamed to form banks and trust companies in the Bahamas and the Cayman Islands to act as trustees, and hold assets under corporate vehicles retaining the lucrative management business.

But the protection of wealth by, and for, families are concerns all around the world. Among the main fears are:

1. Confiscation of assets by governments.

2. Abuse of wealth by their own family members.

3. Excessive taxation by socialist and communist governments.

4. Confidentiality and privacy.

The Bahamas sold these trust services, which benefited this country economically as it provided a safe haven. It is ironic that many countries now seek to deprive their own citizens of the rights to the fundamental freedoms enjoyed by Bahamians. It is ironic that Wall Street, London, Switzerland, the European Union and China and the Far East are saying that their own taxpayers are seeking to avoid taxes, when most legitimate Bahamian trusts, foundations and their wholly-owned International Business Companies (IBCs) hold assets in these countries, and already face withholding taxes on dividends and profits, plus taxes on remittances sent abroad.

It is ironic that confidentiality is suddenly of grave concern following the Wikileaks saga, and access to information on the Internet. It is ironic that Swiss banks and others are moving clients' corporations in large numbers to trust companies in the US, where the laws and regulations make it impossible to obtain information on the ownership of beneficial interests of the beneficiaries, whilst allowing such entities exemptions for all taxes. No Bahamian bank wants to accept anything but good, clean funds, and takes extensive steps to ensure they do not accept monies that have been laundered to hide a criminal activity.

This has resulted in cash becoming king, and forged notes are being discovered here in the Bahamas in large numbers - but not in the banks. Many innocent persons will fall victims to this. Robberies for cash will increase. And, worse still, the Bahamian government and many banks in the Bahamas are attacking the confidentiality of Bahamian clients and beneficiaries (who often are unaware of their future expectations) by signing an automatic exchange of information treaty, which is against every fundamental right provided by the Constitution of the Bahamas.

CONSEQUENTIAL DEVASTATING LOSS TO THE BAHAMAS

Although the previous government tried to limit access to information held by banks and others, first requiring a Court Order and proof of a legitimate reason for the information requested to be given to a foreign nation, the mere attempt to introduce such laws was enough for over 100 banks, and many, many trusts and corporations, to be closed. The business of managing wealth from the Bahamas has reduced by over 50 per cent, and may never return. Job losses among educated Bahamians, and the knock-on effect for landlords, has brought property prices down. This hits all sectors of the economy, as highly-paid executives are let go. The Bahamas must learn quickly that the economy must be managed in a way that keeps every Bahamian dollar in the country, and circulating, to pay for local transactions two or three times a day. This is economic activity that enhances our GDP.

SUGGESTED SOLUTION

All the ingredients for a solution acceptable to the Bahamas are here. We have the finest associations of accountants and lawyers, bankers, trust companies and regulators, all subject to their own impeccable codes of conduct. They can be required to inspect the files, and obtain evidence of legal ownership in a form that would reveal any attempts to avoid taxes. But why should the Bahamas collect those taxes?

Did you know that accountants and lawyers in countries such as the US and Canada are themselves tax collectors for their own revenue authorities, by virtue of having to prepare tax returns where a corporation does business in that country?

The other day I received a request from a Florida accounting firm to submit a tax return for a company that sold a property in Florida, where there was no tax payable and no US beneficial owner in the company. There was no equity, as the only asset of the foreign company - the property - was sold at a loss, which did not even pay back the loan that had financed the purchase of the property. Needless to say, I did not reply to the request, especially as the company had been dissolved in the Bahamas by an independent liquidator.

WE ARE NOT A TAX HAVEN

Did you realise that any company doing business in the Bahamas suffers as many as seven different taxes or government fees? Five of these are:

1. Registrar General fees on Company incorporation and annually

2. Stamp Duties

3. Excise Duty

4. Customs duties

5. Value-Added Tax

Stamp duties are charged on multiple transactions. And are not paid in many cases, as for leases of real estate.

CHANGES TO THE INTERNATIONAL BUSINESS COMPANIES ACT 2000

This grants any company formed under this Act freedom from all taxes in the Bahamas for 20 years, and is automatically extended for a further 20 years. So to repeal this legislation and not continue the freedom from all Bahamian taxes would be a breach of trust, a breach of the rights of all those enticed to form such IBCs. To do so will result in massive legal action against the Bahamas, and lawsuits for damages, if any attempt is made to charge Bahamian or foreign taxes on such companies.

NB: Anthony Howorth, a British citizen, has lived and worked in the Bahamas for more than 40 years. He arrived in 1974, a year after Independence, at the age of 36. He had previously been employed as a trust officer by Barclays Bank DCO in Barbados from 1964 to 1972, and continued to work in that post with Trust Corporation of the Bahamas and its affiliates in Cayman and Panama. He established his own business as a Bahamian-licensed financial and corporate services provider from 2002 until the present time.