The Tribune

• Alleges it ‘shelved’ plan ‘accepted’ by EU to cure woes

• First portal developer pledged solution ‘in six months’

• ‘All they had to do was follow plan we left,’ he claims

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Dr Hubert Minnis yesterday accused the Government of “causing” The Bahamas’ tax blacklisting by “shelving” a solution that had been “accepted” by the European Union (EU).

The former prime minister, speaking after The Bahamas last week failed to escape the EU’s list of non-cooperative jurisdictions following the latest review, told Tribune Business his administration had agreed a plan to address the 27-nation bloc’s concerns over this nation’s compliance with its economic substance reporting demands.

Disclosing that he had “personally” discussed the issue with EU officials, Dr Minnis said his administration had contracted DataTorque, the New Zealand-headquartered developer of the original substance reporting portal, to implement the necessary upgrades that would address the European dissatisfaction “in no more than six months”.

Suggesting that this work was to cost around $260,000, the former prime minister told this newspaper that DataTorque had started the overhauls prior to the September 2021 general election. After his administration was voted out of office, Dr Minnis said the programme was halted by the Ministry of Finance - a move he alleges led directly to The Bahamas’ blacklisting by the EU in October 2022.

“We had engaged a company, DataTorque, to provide a platform initially that would allow for [economic substance] reporting via the Department of Inland Revenue’s (DIR) reporting platform,” the Killarney MP said. “The EU had subsequently requested some data that could not be extracted from the platform without further upgrades.

“DataTorque was advised of the problem and they provided us with a solution to upgrade the platform at a cost of about $260,000 if my memory serves me correctly. They had promised to roll it out in no more than six months.

“This programme would have addressed some of the challenges with the system used for the substance reporting, and this plan was presented to the EU, and the time to implementation, and was accepted as a workable solution by them,” Dr Minnis continued.

“When the administration changed, the programme and the plan was arbitrarily shelved. They shelved the programme and the plan. That programme and plan were presented to the EU, and accepted as a workable solution. The Government shelved the programme when they came in and the plan.

“The issues we are seeing today are are as a result of the Government’s failure in not following through on what our government had done and was approved by the EU. My information is that DataTorque had started the upgrades.

“They [the Davis administration] caused us to get blacklisted. All they had to do was follow the plan we had left in place and allow DataTorque to complete the programme which had already been approved by the EU. This matter falls to Brave Davis’ administration. All this shows us is that if they’d followed the programme and plan we would not be in the mess we are in.”

Dr Minnis said he had travelled to Europe himself with then-attorney general, Carl Bethel KC, to address the economic substance reporting deficiencies. “I had travelled there and spoken to them personally myself,” he added. “I had gone up earlier to talk about the challenges we had, myself and Carl Bethel.... The programme was stopped by the Ministry of Finance.”

The former prime minister’s account, though, has already been vehemently contradicted by Davis administration Cabinet ministers. Ryan Pinder KC, the attorney general, has repeatedly argued that the Minnis administration’s decision to effectively bolt the economic substance reporting portal on to the Department of Inland Revenue led to a “non-functional” system with corporate filings having to be entered manually.

“To give some context, the deficiencies primarily lie in the reporting portal and methodology that was put in place,” Mr Pinder said in late 2022. “The former FNM government looked to put the substance reporting through the Department of Inland Revenue framework.

“This method was ineffective and presented many problems with the actual administration of the reporting. In fact, at a point in time the reporting was being done on a manual entry basis as the entire platform was non-functional. A complete failure of implementation, which led to the blacklisting of the country by the EU.”

He repeated the same concerns following last week’s EU decision to keep The Bahamas on its tax blacklist, asserting: “The old portal was completely deficient and did not function.

“Part of the challenge that we faced, and the work we continue to do, is take the data that was reported historically in that system and review it, reorder it, clean it and make sure that it’s accurate so it can be advanced [migrated] to the new portal. If the former portal was bad, the organisation of the data was equally as bad.

“We’re working through that manually. Every report in the old portal we’re manually reviewing, manually assessing and putting in the new portal to complete the reporting by the end of the calendar year. That will be the last piece to be deemed co-operative and compliant with our obligations,” he added.

“It’s been a lot of work. The fact of the matter is we have an obligation to get it right even if the former administration got it wrong, and we are doing everything in our power to get it right.”

Dr Minnis’ accusations also risk re-igniting the political ‘blame game’ that erupted when The Bahamas was blacklisted in October 2022, with the Davis administration and Opposition engaging in ‘finger pointing’ and each accusing the other of being responsible for that outcome.

Several observers have also argued that, rather than dredging up history, The Bahamas’ focus - and that of its government and political parties - should be on executing the reforms necessary to ensure this nation escapes the EU blacklist as rapidly as possible and subsequently stays off it for the good of its economy and financial services industry.

What is new, though, is the former prime minister’s assertion that the EU had “accepted” the solution offered by his administration and that it was “shelved” post-general election by the Ministry of Finance. Tribune Business understands that, after being elected to office, the Davis administration disbanded the Ministry of Finance unit dealing with EU and OECD-related tax matters, releasing its head, Stephen Coakley-Wells.

“Stephen was well involved and understood the process,” Dr Minnis added yesterday. “The plan was put together and accepted by the EU and, when they came in, they stopped it. No one picked up the process, even upgrading the portal, not once. The focus they had in there, relative to the EU, all that was dropped and never restored.”

Tribune Business previously revealed that Philip Davis KC, the prime minister, signed three separate letters over a six-week period between December 15, 2021, and January 26, 2022, to the EU pledging that The Bahamas will resolve the 27-nation bloc’s issues over “economic substance” and tax reporting

This was clearly never accomplished to the EU’s satisfaction as The Bahamas was duly ‘blacklisted’ some ten months later. It is unclear what happened between those letters and October 2022, and it was only after this nation was listed that Simon Wilson, the Ministry of Finance’s financial secretary, said the Government would have to spend between $4m-$5m on an entirely new reporting system.

He blamed deficiencies in the software for the economic substance portal that the Davis administration inherited from its predecessor, arguing that the existing system “just didn’t cut it”. One source, familiar with what the Minnis administration had left in place, admitted there were some challenges with the portal but that these were being addressed prior to the 2021 general election.

“It would be accurate to say there were some challenges with the user friendliness of it,” the source said. “It was sub-optimal but that was being corrected. It was a work in progress. DataTorque were the ones who had developed the portal, and there was already an agreement with them and they had started the process to upgrade the portal.

“I thought it was extremely odd that they [the Davis administration] would cancel it. They knew they were up against a timeline.” DataTorque’s website, though, shows it specialises in dealing with revenue, customs and transport software rather than economic substance reporting.

‘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 initial Commercial Entities (Substance Requirements) Act 2018 required all companies conducting “relevant activities” to confirm they are carrying out real business in The Bahamas via annual electronic filings - a requirement that was maintained in upgraded legislation, passed by Parliament earlier this year, to help address the purported deficiencies identified by the EU.

The Government has also initiated inspections and enforcement actions to ensure registered agents and their corporate clients are complying with the Act, while BDO - the company that developed the beneficial ownership registry (BOSS) system - was hired to develop a new electronic online portal for economic substance filing and reporting. That portal went live in September, although the deadline for 2022 filings was extended to October.

“The level of work has been, and continues to be, rather intense,” Mr Pinder told Tribune Business last week of the ongoing drive to ensure The Bahamas meets EU and OECD demands. “We have accomplished a lot in the last year. You would note, if you look at the October release by the EU last year, it spoke about deficiencies in the country-by-country reporting mechanism

“You would note those are no longer detailed this year. The EU has acknowledged that, in the grand scheme of things, in their review that we have improved.”