The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The government will today table further legal changes in Parliament to ensure The Bahamas escapes the European Union’s (EU) tax evasion “blacklist”.

The Minnis administration, in a statement issued late last night, said it will unveil amendments to the Commercial Entities (Substance Requirements) Act to satisfy the 28-nation bloc’s demands following the prime minister’s recent trip to Brussels.

“The amendments follow the latest round of high-level discussions between senior government officials and the European Commission, and take into account feedback received from the commission following an assessment of the legislation,” the government said.

It thus appears that the EU was dissatisfied with parts of the Act passed in early December 2018, and that The Bahamas was in danger of being re-blacklisted if it failed to adjust the legislation to its satisfaction.

In particular, the government said today’s changes will alter the sections relating to “holding companies and resident criteria”.

“The Commercial Entities (Substance Requirements) (Amendment) Bill 2019 expands and clarifies various definitions, and substance and reporting requirements under the original legislation,” the statement last night said.

“Government worked closely with key stakeholders in the financial services sector in preparing the amendments to the Commercial Entities (Substance Requirements) Act. International advisors were also consulted.

“The amendments reinforce the government’s intent to take all necessary steps to safeguard the financial services sector and maintain the industry’s competitive edge, and ensure the removal of The Bahamas from all watch lists in the shortest time frame possible.”

The government met with the financial services industry on Monday to discuss the proposed changes, and has also met with the opposition on the matter.

The Commercial Entities (Substance Requirements) Act is designed to address the EU’s demand for all nations to impose “economic substance” regimes that effectively require companies to prove they have a physical presence - and are doing “real business” - in a jurisdiction.

It wants corporate profits, revenues and assets to be taxed in the jurisdictions where they are generated. They are thus aiming to prevent companies, especially multinational corporations, from exploiting gaps in tax types, rates and rules to artificially shift profits from jurisdictions where they are generated to low or ‘no tax’ jurisdictions, thus lowering their tax bill.

The Bahamian law requires entities operating in this nation to show they have a physical presence by conducting income-generating activities here. Management and control must also reside in this country.

Headquarters operations, together with banking, insurance, fund management, financing and leasing, shipping, distribution or service center operations, and holding companies, are the business activities under the Act that must have a “substantial presence” in The Bahamas through offices and employees and be conducting “real business” activities.

K P Turnquest, the deputy prime minister, in unveiling the Act in the House pre-Christmas, said it was benchmarked on Jersey’s and met EU demands by eliminating the “distinction” that allowed companies to form International Business Companies (IBCs) and other corporate entities as passive “fronting” or holding vehicles that had no physical presence - in terms of an office or staff - in this nation.

“All companies operating from the Bahamas must demonstrate substantial economic and operational presence or have their activity reported and taxed in the jurisdiction where the substantial relevant activity is conducted, so that they can be assessed for tax purposes in that jurisdiction,” the Deputy Prime Minister explained.

Conceding that there was “a new paradigm” when it comes to financial services, Mr Turnquest said the criteria for assessing whether a company has complied with the Bill - besides having an office and staff here - includes the presence of “mind and management” through directors and Board meetings.

“You can’t just pad a company with nominee directors,” he added. “They must have the qualifications to fulfill the substance requirements and make the decisions they’d be expected to make in the conduct of business.

“In essence the intent of the Commercial Entities (Substance Requirements) Bill 2018 is to make the activities of an entity commensurate with its presence in The Bahamas. This means that, at its most basic level, it requires that the included entities have a bona fide office and be more than a ‘brass plate’ at the office of its registered agent.

“The entity should also have tangible assets with a direct connection to its business, and the entity should be in compliance with all reporting obligations within the jurisdiction.... The EU has sent a clear message that substance requirements legislation must be passed by December 31, 2018.”