The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

A Cabinet minister yesterday said the latest reforms to the economic substance reporting regime are designed to remove The Bahamas from, and keep it off, tax-related blacklists.

Senator Michael Halkitis, in his contribution to the Senate debate on the Commercial Entities (Substance Requirements) Amendment Bill 2023 and the Register of Beneficial Ownership Amendment Bill 2023, said amendments to the former are necessary to address recommendations from the Organisation for Economic Co-Operation and Development's (OECD) forum on harmful tax practices.

The OECD forum, in its October review, determined that The Bahamas' economic substance reporting regime is “not harmful” but called on this nation to fulfill three recommendations that the latest regulatory reforms are designed to meet. Most critical among the three is the demand that The Bahamas bring its exchanges of economic substance information with other countries up to the required "standard".

The Bahamas needs to “undertake the required exchanges of information under the standard (with respect to all relevant entities, as required for jurisdictions without a fully equipped monitoring mechanism (FEMM)”, Mr Halkitis said of the OECD's core recommendation.

The Paris-based body, which represents the world's wealthiest and most industrialised nations, called on The Bahamas to better verify its statistical data with respect to economic substance reporting. And the OECD forum also urged this nation to strive for greater compliance that goes “beyond” desk based reviews.

This is particularly for “entities that claim to be out of scope, pure equity holding companies (PEHCs) and foreign tax residence claims.

Besides ensuring The Bahamas remains compliant with the OECD’s demands, adopting the latter's recommendations into law 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 initiative 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 the latter’s information exchange recommendation is also vital to a favourable review from the European bloc.

Mr Halkitis yesterday explained: “There are cross-cutting issues with respect to the measures that The Bahamas has to take to satisfy the requirements of the forum on harmful tax practices and the EU.

"The new provisions contained within these Bills will address the concerns of the harmful tax practices secretariat and EU Code of Conduct Group. However, the purpose is to have The Bahamas’ name and recommendations removed from the EU and forum on harmful tax practices secretariat’s list.

“The proposed amendments to the Commercial Entities (Substance Requirements) Act will allow The Bahamas to conduct exchanges on all relevant entities as required for jurisdictions without a FEMM. The Bahamas is currently exchanging information utilising a Standard Monitoring Mechanism designation," he added.

"The amendments would allow The Bahamas to fulfill its international obligations under the standard and be in a better position to request an assessment for FEMM designation in the April 2024 meeting of the forum on harmful tax practices.”

Mr Halkitis added: “The amendments will allow the Authority responsible for the Commercial Entities (Substance Requirements) Act to successfully undertake the procedures involved with the exchange of information under the Act, in addition to the exchange of information under the International Tax Co-operation Act or Multilateral Convention on Mutual Administrative Assistance in Tax Matters, without being in breach of the confidentiality provisions of the Act.”

Explaining how this is linked to reforms to the Register of Beneficial Ownership Act, Mr Halkitis said the Ministry of Finance will now be able to “procure information first hand” from the system in order to allow for prompt compliance via the International Tax Co-operation Act and Commercial Entities (Substance Requirements) Act.

“Through the aforementioned amendments, The Bahamas would have a comprehensive legal framework capable of responding to the ebbs and flows of the financial services industry, thereby enabling The Bahamas to sustain its competitive nature and position as a leading international financial services centre (IFC).”