The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Real Estate Association (BREA) was yesterday awaiting legal advice with several top realtors facing fines of $25,000 for not replying to a Department of Inland Revenue (DIR) "fishing" expedition.

Carla Sweeting, BREA's president, when contacted by Tribune Business confirmed that the Association was waiting on a legal opinion from its attorney after the tax authorities gave 20 leading real estate companies just 14 days to provide a multitude of details on all transactions they have been involved with going back more than five-and-a-half years.

This newspaper's contacts, speaking on condition of anonymity because of the issue's sensitivity, revealed that the Department of Inland Revenue sent out e-mail notices around October 10 requesting that the selected companies supply the purchase prices for all real estate transactions they have been involved in from January 1, 2019, to September 2024 - a period covering five years and nine months.

The notices, issued under the VAT Act's section 62 (1), which gives the comptroller wide-ranging "investigatory powers" to demand information from anyone thought liable to pay the tax, also demanded details such as the legal description of every property transacted, including address and location; the names of all buyers and sellers; and, if those were corporate entities, the names of the directors involved.

This newspaper was also told that the tax authorities sought a list of all long-term leases, meaning those five years or longer as defined by the VAT Act, as well as the identities of the attorneys (those on the vendor side) involved in the transactions.

The 14-day deadline to comply is understood to have provoked a major scramble at the 20 targeted realtors to assemble the information demanded by the tax authorities. A number requested, and were granted, an extension until yesterday to submit the required paperwork to the Department of Inland Revenue.

However, Tribune Business can reveal that at least two major realtors have received formal notification from the tax authority that they are to be fined $25,000 for non-compliance. It is understood, though, that the firms involved are arguing that they never received the original e-mailed notice or otherwise they would have complied, while another realtor may have been fined for missing the deadline and not seeking an extension.

The Department of Inland Revenue demands are understood to have been viewed as problematic by realtors, who are questioning why they were targeted given that all funds related to land and property transactions - including the 10 percent VAT due on the conveyance or purchase price - are never touched by themselves but instead all handled by the attorneys representing the buyer and seller.

And there are also concerns that providing some of the information requested, such as the names of all directors for a company involved in a real estate transaction, could violate client confidentiality and data protection stipulations in laws such as the Financial Transactions Reporting Act and Data Protection Act.

Ms Sweeting, when contacted by Tribune Business, said: "We are aware. We wrote to them [the Department of Inland Revenue] asking for an extension on behalf of those persons that received the notice to do these filings. We would have sent that out on October 24, and we've not heard anything from them.

"We asked for an extension until the end of November while we seek legal advice as to whether this is legal. In our minds, they are not only in breach of the VAT Act but the Financial Transactions Reporting Act and the Data Protection Act. We're awaiting legal advice. We've spoken to our attorney this morning and are waiting for that legal advice and opinion, which we hope to get shortly."

One real estate source, speaking on condition of anonymity, told this newspaper that the Financial Transactions Reporting Act stipulates that while realtors must obtain Know Your Customer (KYC) information on clients this is not to be disclosed unless they are ordered to do so by the Supreme Court or via a Compliance Commission inspection.

There are concerns that complying with the Department of Inland Revenue's request, made under the VAT Act, could run afoul of this statutory law provision as well as the obligations to protect client data as set out in the Data Protection Act.

"Realtors were given a two-week period to provide all this data and, if they failed to do that, they were warned they would be fined $100,000 or put in prison for two to three years," the source said. "If you go and look in the VAT Act and regulations, there's a section in there that outlines the data for VAT registrants to obtain. Nowhere does it mention that you have to obtain the names of directors of companies."

While the VAT Act now makes directors of corporate entities directly liable if the company fails to meet its tax obligations, the source questioned why realtors were being asked to supply their identities when such information should be readily available at other government agencies such as the Registrar General's Department's companies registry.

Describing the move as a "fishing exercise" by the Department of Inland Revenue, and "far reaching", they said BREA's legal opinion will determine if this is "overreach" by the tax authorities and what rights realtors have - including whether there was a possibility to bring a Judicial Review challenge before the Supreme Court.

Another contact added: "I have been told there are two companies which never received the notice and were informed last [Wednesday] night that they will be fined $25,000, and one company that received it but did not meet the deadline which has also been fined." The two that never received the initial notification are asking for proof it was sent, asserting they would have complied if they had known about it."

Dexter Fernander, the Department of Inland Revenue's operations head, yesterday told Tribune Business he was unaware of the specific circumstances surrounding the information demanded of the real estate industry but said the tax authority now has the tools needed to conduct sector-specific "reviews".

"That sounds like an audit," he said, confirming that companies would either receive a hand-delivered letter or e-mail to notify them of the Department of Inland Revenue's action along with a timeframe in which they must respond.

"I'm not aware of anyone saying they did not receive a letter," Mr Fernander added. "I'm not aware of the circumstances, but as a general principle the Department of Inland Revenue reviews some industries and asks for supporting documents for VAT returns to be submitted.

"In January we implemented a more robust management system that allows us to do more industry reviews, and in collaboration with the work sheets coming out of the audited financial statements. According to the Act we do have the authority to issue penalties, but I'm not sure at this time of anyone having penalties added to their account."