By YOURI KEMP
Tribune Business Reporter
ykemp@tribunemedia.net
The Attorney General yesterday blamed the Minnis administration’s “fundamentally flawed” approach to complying with the European Union’s (EU) economic substance demands for landing The Bahamas on the bloc’s blacklist.
Ryan Pinder KC, speaking ahead of the weekly Cabinet meeting, said the Commercial Entities (Substance Requirements) Act 2018 was woefully inadequate in addressing a key EU requirement to remain off its list of jurisdictions deemed non-cooperative on international tax matters.
Hitting back at the Opposition’s assertions that the Davis administration “dropped the ball” in complying with the 27-nation bloc’s demands, and instead pointing the finger of blame at its Minnis predecessor, he blasted: “They had three-and-a-half years to put in place a compliant regime of economic substance reporting and failed to do it.
“They failed the country. They failed the financial services industry, and they really should be ashamed of themselves now trying to make this issue political since it’s squarely on their feet.” Mr Pinder argued that the Davis administration first became aware of the EU’s concerns with The Bahamas’ economic substance reporting late last year, which ties in with the December 13, 2021, letter sent from Brussels detailing the issues it had.
“We were notified of the non-compliance late last year. We gave our assurances that we would try to work with the EU. Clearly, with a fundamental flaw, it takes some time to fix and we were just unable to get over all of the hurdles in time [to address and avoid] the non-compliant rating,” Mr Pinder explained.
“So what we’ve been doing is we’re going to have to put in place a new portal, a new reporting system to be compliant. We have a series of proposals in place now. We’re going through those and we will get them in place as quick as possible to try to rectify the situation.” Given the date, it is unlikely that The Bahamas will meet the EU’s demands and be removed from its ‘blacklist’ - a move set to be affirmed next month - until some time in 2023 at earliest.
Mr Pinder’s comments contradict assertions by Kwasi Thompson, former minister of state for finance, that the Minnis administration had already approved plans to address the EU’s concerns.
“The former FNM administration approved enhancements to the economic substance reporting system prior to the 2021 election, which this current administration was advised by the technical adviser to follow through with to ensure that The Bahamas received a favourable rating by the international taxation standard setters. Why did the Government not proceed with the former administration’s planned upgrades which were approved by the technical staff?” the ex-minister said.
Separately, other sources speaking on condition of anonymity, confirmed that the former Minnis administration had been aware there were weaknesses with the database of economic substance information that had been reported electronically by local companies.
This newspaper understands that a New Zealand company, which created the electronic portal through which these details are submitted, had been re-engaged by the former administration to make the necessary upgrades and address the EU’s concerns. However, well-placed sources have questioned whether the work was completed or brought to a conclusion under the Davis administration.
Mr Pinder yesterday seemed to confirm that the portal, and implementation of the reporting requirements, is what has sparked The Bahamas’ latest ‘blacklisting’. Yet one contact had confirmed: “A plan had been left in place to upgrade that substance reporting database. There were some issues; they couldn’t do the interrogatories of that database as they needed to. The Minnis administration had left a plan in place to do the upgrades.”
‘Economic substance’ is a test that requires companies to show they are doing real, legitimate business in a jurisdiction and are not merely brass plate, letterbox fronting companies acting to shield taxable assets and wealth from their home country authorities. The Commercial Entities (Substance Requirements) Act 2018 requires all companies conducting “relevant activities” to confirm they are carrying out real business in The Bahamas via annual electronic filings.
Tribune Business revealed earlier this week that the Prime Minister signed three letters promising the European Union (EU) that The Bahamas would address - within the required deadline - the very concerns that have resulted in the country’s imminent ‘blacklisting’.
These letters, signed over a six-week period between December 15, 2021, and January 26, 2022, pledged that The Bahamas would resolve the issues over “economic substance” and tax reporting. Given the “fundamental flaws” in the economic substance reporting mechanism and portal, it is thus unclear why The Bahamas would promise the deficiencies would be addressed within deadline unless the amount of work required was misjudged.
The Davis administration’s promises are detailed in a February 2, 2022, report by the Code of Conduct Group - which oversees the bloc’s so-called “international tax co-operation” initiative - to the EU Council’s general secretariat. It discloses that it warned The Bahamas on December 13, 2021, about its concerns with several aspects of this country’s tax-related regulatory regime and called on the country to make “a political commitment” to resolve them to its satisfaction.
The Bahamas responded, according to the EU report, within 48 hours by pledging to make good any deficiencies within the required timeline. These signed commitments by Mr Davis were deemed strong enough to merit The Bahamas avoiding the EU’s tax ‘blacklist’ when its Council met in late February 2022, with this nation placed on its so-called ‘grey list’ of countries that warranted further monitoring to see if they lived up to their pledges to address these deficiencies.
Mr Pinder, meanwhile, said he was “disinvited” from the consultative committee formed by the former administration in 2018 to assist with the crafting of the Commercial Entities (Substance Requirements) Act - an action he deemed as political.
Many Bahamians, especially those in the financial services industry, are likely though to want an end to the political fighting and blame game, and for the focus to instead be placed on ensuring The Bahamas escapes the EU blacklist in the swiftest possible time and at minimal cost.
Comments
birdiestrachan 2 years, 2 months ago
Thompson never speaks the truth. he comes with a long list of lies. Mr: Pinder has to keep the Bahamian people informed unless they will believe the lies.
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