The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas has been forced to change its economic substance reporting laws twice within a year “to ensure that we are off” the OECD and EU blacklists, the Prime Minister said yesterday.

Philip Davis KC, leading-off House of Assembly debate on the Commercial Entities (Substance Requirements) (Amendment) Bill 2023 and the Register of Beneficial Ownership (Amendment) Bill 2023, said the reforms are a response to the latest “hard” recommendation made by the Organisation of Economic Co-Operation and Development’s (OECD) forum on harmful tax practices.

The OECD forum, while rating The Bahamas’ economic substance regime as ‘not harmful’ in its October 2023 review, urged this nation to bring its exchanges of information with other jurisdictions up to “the standard” required by the initiative. This, Mr Davis said, is what is driving the latest reforms to the economic substance reporting legislation.

He explained that this will not only ensure The Bahamas remains compliant with the OECD’s demands, but is also critical to the country’s prospects of escaping the European Union’s (EU) blacklist of nations considered non-cooperative for tax purposes when the 27-nation bloc next meets to review that initiative in February 2024.

The EU largely takes its cue from the OECD’s forum, given that both bodies’ tax and “economic substance” initiatives overlap to some extent, so fully embracing and adopting latter’s recommendation is also vital to a favourable review from the European bloc.

Mr Davis said complying with the OECD’s directive also requires changes to The Bahamas’ Register of Beneficial Ownership Act and regime. The thrust of the OECD recommendation is that both portals - the one for economic substance, and other for beneficial ownership registration - need to interface with one another to achieve the desired exchange of information standard.

Acknowledging that questions will be asked over why The Bahamas needs to again amend its economic substance reporting regime, given that previous changes were enacted just months ago, the Prime Minister explained: “Earlier this year, after several months of work, The Bahamas underwent a preliminary assessment by the [OECD] forum on harmful tax practices.

“I must inform you that during the forum on harmful tax practices’ October meeting, The Bahamas’ economic substance regime has been rated as ‘not harmful’ with a few recommendations to make key changes.

“These include soft recommendations on the verification of data and more intensive reviews of certain entities, as well as a hard recommendation urging us to ‘undertake the required exchanges of information under the standard’,” Mr Davis added.

“While all of the recommendations are important, it is the third ‘hard’ recommendation that is crucial. The third recommendation is the reason for the imminent amendment to the Commercial Entities (Substance Requirements) Act.

“It is also the reason why we are making an amendment to the Register of Beneficial Ownership Act. The key issue that both of these amendments address is the need for these portals to interface with one another to facilitate the exchange of information.”

Mr Davis said The Bahamas has promised the OECD that the reforms to meet the exchange of information standard will be enacted and in place by 2023 year-end. “We fully intend to honour that commitment. Since then, we have organised, cleaned and compiled data, and migrated it to facilitate the exchange of information between the portals,” he added.

“We are doing all that they asked us to do and, as a result, we expect that we will be removed from the EU’s blacklist as long as the goalposts are not moved once again.” Kwasi Thompson, the Opposition’s finance spokesman, yesterday was among those challenging why the latest economic substance reforms were being brought forward now rather than in April 2023 when the last changes were made.

“If these are not to ensure we are removed off the [black]list, why exactly are we seeking to pass this and why now. Just come clean with the Bahamian people,” the east Grand Bahama MP charged. Mr Davis yesterday conceded that the OECD and EU demands were “onerous”, and said “it is inevitable that some entities may have difficulty complying with these standards”.

“However, we must make it clear that the purpose of these changes is not to discourage entities or individuals from conducting or establishing businesses in The Bahamas,” he added. “In fact, our aim is to attract bona fide business people who will conduct and engage in legitimate business activity while demonstrating to the world that we are serious about adhering to the highest and most stringent global standards.

“That is why we remain optimistic about being removed from the EU’s list during the next review. And we are also optimistic about our long-term prospects for sectorial growth based on our existing competitive advantages.”

Mr Davis also hit out at the backwards nature of the process which, he alleged, had resulted in The Bahamas remaining on the EU ‘blacklist’ at its October review. “There may be those confused by our optimism given the fact that The Bahamas was still listed on the EU non-cooperative list just over a month ago in October,” he added.

“However, it should be noted that this assessment was based on the OECD’s report completed in April, so at the time the EU made its decision the information was already over six months old.

“In fact, the EU had their council of ministers meeting in October and made a decision not to remove us from the blacklist, and the very next month in November the OECD agreed that based on our approach to compliance, we’d be removed.”

The Prime Minister asserted: “Surely, you’d think that these two European institutions would talk to each other in the interest of ensuring that the decision regarding our continued presence on the non-cooperative list was made fairly, and was based on the most current and accurate information.

“Instead, the decision was made using outdated information with disregard for the impact that this inaccurate decision could have on us. This behavior is indicative of a wider trend in which unfair standards are applied to countries like ours.”

The new Act stipulates that companies who have to abide by economic substance reporting requirements must provide information such as gross income earned; the total amount of expenditure incurred on activities captured by substance reporting; the amount spent in The Bahamas; the total number of employees; and their address within The Bahamas. Board meeting details are also required.

The reforms were also accompanied by the tabling of economic substance reporting legislation in Parliament. “These regulations will support and strengthen the exchange of information legislative framework,” Mr Davis added.

“In response to the call for greater clarity on this area of the law, the amendment to section 29 of the principal Act will allow the minister of finance to provide comprehensive regulations with further clarifications and explanations.....

“There are a number of other notable changes related to the reporting of information by parent entities, the requesting of additional information from entities, the spontaneous exchange of information, and the removal of reportable jurisdictions from the Act to the regulations to allow for faster changes when the need arises.”