The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Bahamian financial services industry’s call to “revisit” the 15 percent minimum global corporate tax is too late because “that ship that has sailed”, a prominent local banker warned yesterday.

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, told Tribune Business this nation “must decide how we compete” via non-tax advantages that differentiate it from rivals rather than seeking last-minute changes to a G-20/OECD minimum tax drive where almost 140 nations - including this one - have already signed on to comply.

Emphasising that this was not criticism of the joint letter sent to the United Nations (UN) ad-hoc taxation committee by the Bahamas Financial Services Board (BFSB) and Association of International Banks and Trust Companies, which argued the 15 percent minimum tax violates the sovereign right of nations to set their own systems and rates, he argued this nation must approach “from a position of strength”.

Mr Bowe told this newspaper that The Bahamas must adopt a “David versus Goliath” mentality, or the mindset employed by its leading track and field athletes at the Olympics and World Championships, and learn to consistently punch above its weight through quality customer service, workforce expertise and “innovation” in the products and services it offers.

And, suggesting that The Bahamas is conflating sovereignty with “inter-dependence”, the Fidelity Bank (Bahamas) chief said that as an international financial centre (IFC) this country has to understand its “bread is buttered” through “playing by the rules” set by the developed countries as this ensures continued access to the markets and customers that form this nation’s client base.

Describing the BFSB/ AIBT letter as “a consensus view”, Mr Bowe said: “I will speak candidly to you, as I shared with them, that from our perspective as an institution and me personally, we are not in agreement with those elements. To me, we conflate sovereignty with inter-dependence.

“We as a sovereign nation can choose not to sign on to various accords and various agreements, but the reality is that we have to decide how does that leave us in terms of our inter-dependence as an IFC? The reality is there’s nothing about the [OECD’s] inclusive framework that’s eroding or impeding our sovereignty.

“It’s really saying if you want to be part of this... call it a social club, being facetious, you join and play by these rules or you don’t. If we want to be part of this club, which includes most of the world, then you have to play by the rules set by the bigger players of this club. As an IFC, that’s where or bread is buttered as we offer services to those jurisdictions,” he confirmed.

“We are part of a global initiative which, once you comply with it, opens doors which would otherwise be closed. We have to decide how we compete... He who has the gold sets the rules.”

The BFSB and AIBT, in a joint March 14, 2024, letter to the commit- tee drafting the proposed United Nations (UN) convention on international tax co-operation argued it was irrelevant if a country’s tax rate was “0 percent or 15 percent” so long as corporate entities were doing real business and abiding by key rules.

The letter, signed by Niekia Horton, the BFSB’s chief executive and executive director, and Bruno Roberts, the AIBT’s chairman said the focus should instead be placed on establishing common “substance/ presence rules” to ensure corporate entities are doing real business in the territories where they operate.

And they also called for uniform “transfer pricing rules”, so that multinational groups cannot avoid/evade their tax obligations in one jurisdiction by transferring funds to a subsidiary located in another country through purporting to purchase goods or services from it.

The joint BFSB/AIBT letter, which was copied to Ryan Pinder KC, the attorney general, in his capacity as The Bahamas’ and Caribbean representative on the UN committee, effectively argued that focusing on establishing a uniform tax system and rate for all countries as a counter to avoidance and evasion by large multinationals was misplaced and would eliminate tax competition between nations.

“Revisit the minimum global corporate tax requirement, as it infringes on sovereign nations’ autonomy to establish and manage their own tax systems,” the two largest advocacy groups in the Bahamian financial services industry argued.

“Alternatively, international tax rules should focus on substance presence rules and standardised transfer pricing rules to prevent tax evasion through profit shifting. If entities operate in substance and form within a country, that country’s tax rules should apply, whether 0 percent or 15 percent.”

Paul Moss, president of Bahamas-based Dominion Management Services, yesterday branded the BFSB/AIBT letter and the thinking it outlined as “refreshing” because it recognised that the “conformity” being pushed by the G-20/OECD would eliminate this nation’s tax competitiveness and advantages via the 15 percent ‘one size fits all’ minimum corporate tax.

“I think that’s spot on. They ought to look at it. We have a basis where we start out, as a nation, saying we shouldn’t act as a tax collector for other countries or agree to tax conformity. It’s not what it’s about. It’s about tax competition, and they’re right to recognise we need to participate in this industry. If we conform to what they want, there’s no basis for tax competition,” Mr Moss told Tribune Business.

“If we accept this 15 percent, when it comes time for The Bahamas to implement this taxation on its domestic economy, the rate will have to be 15 percent because of ring fencing. That’s been going on historically where countries must not have different tax regimes for foreign and domestic entities.”

Mr Moss’ point is that, once the Government implements the Qualified Domestic Minimum Top-Up Tax, local entities which are part of multinational groups with turnover exceeding 750m euros will be subject to a 15 percent corporate income tax.

To avoid running afoul of the European Union’s (EU) ring fencing strictures, which forbid countries having separate tax regimes for domestic and international business, the same 15 percent rate will have to be applied to the domestic economy. And Mr Moss, too, conceded that the BFSB/AIBT letter was likely too late to have any impact.

Mr Bowe yesterday said he understood the letter’s purpose in setting out The Bahamas’ entire case to the UN committee, including how it has been wronged by past blacklistings and other regulatory initiatives launched by developed countries, but argued that this nation needs to approach financial services by exuding “strength” instead of “weakness”.

“We have to decide whether we are ‘David versus Goliath’ or crying wolf and saying everything is ‘woe is me’,” he told Tribune Business. “I believe in taking the David versus Goliath model and finding the pebble to strike Goliath. If we are talking about financial services, why don’t we imagine how we can compete?

“I believe there is merit in pleading all matters that concern us, but we have to be careful not to come from a position of weakness and asking someone to level the playing field for us but go back to the pebble - being David - and asking how we strike. As it relates to sovereignty, that is not one that is the real issue. Tax rules have nothing to do with sovereignty. It boils down to whether everyone playing by the same rules.”

The mobility of international capital and business means “the only way to have a level playing field” is through a minimum level of taxation regardless of where an entity is located, Mr Bowe added. He argued that The Bahamas must seek out other competitive advantages than simply offering international clients no or low-rate taxation.

“The competition should be on service, the expertise in the jurisdiction and the innovation in the products and services we’re developing to meet the needs and wants of those customers we’re trying to attract,” the Fidelity Bank (Bahamas) chief told Tribune Business.

“If we eliminate tax arbitrage as a reason to pick The Bahamas, and I don’t want us to be playing in that space... I want us to be saying we can develop products, structures and legal entities that comply with the minimum tax but provide competitive advantages because of our proximity to the US, our experience in the trust business and we give you a better service than anywhere else.

“I accept the position that there are concerns [on the 15 percent minimum corporate income tax]. Those are not concerns that have no merit, but I take the view that ship has sailed so we need to be coming more from a position of strength,” Mr Bowe continued.

“More than what is the way of the world, we need to be a little more aggressive in how we take on the world. I understand the purpose of the submission. The UN is asking what are our concerns. I take a totally different view. Sovereignty in the 21st century has nothing to do with your ability to write laws. Sovereignty is only useful to the extent you can access the rest of the world.”

While this nation “can close itself off” like its western neighbour, Cuba, Mr Bowe questioned whether it can survive like that. “When you look at it, I think The Bahamas needs to move away from saying we need to make our laws because that somehow makes us sovereign,” he added.

“We have to be a bit more progressive in our thinking rather than playing the old game. We want our sovereignty and tax competition, but the reality is we want their interest, customers and business to come here. We can’t then call the rules unfair. We have to differentiate ourselves as opposed to saying we have an innate ability to do what we need to do. That doesn’t happen in the real world.”