The Tribune

EDITOR, The Tribune.

ON October 8, 2021, Prime Minister Davis and Attorney General Hon Ryan Pinder signed and supported the G20 & OECD’s ‘Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy’. The statement endorsed by over 140 countries may be construed as an ‘agreement to agree’, which is contritely and inherently uncertain, on the Two-Pillar Solution (TPS) to stabilise the international tax regime (ITR). The TPS is now commonly known in tax literature as BEPS 2.0 or ‘Base Expansion and Profit Sharing’ rules that consist of a multilateral tax convention (Pillar 1) and a minimum effective tax rate of 15% on excess profits (Pillar 2) for large multinational entities (MNE). 

At the time of writing and conducting three research studies on this topic, on each end of the pond, the UK and The Bahamas have either implemented, amended, or conducted open consultations on the future of the Diverted Profit Tax (DPT),[1] Commercial Entities (Economic Substance) Requirements Act, 2018 (CESRA),[2] corporate tax rates (CTR), and Pillar 2 rules in accordance with the BEPS Project. Fast forward less than 3 years later since the first installment of this financial services series many still may be pondering, What the BEPS is going on? 

Well, I have found that many in society are concerned about BEPS 2.0’s purported equitable wealth distribution benefits, if any, in comparison to the negative impact and compliance burdens on the financial services industry and tech start-ups. The potential overall net loss for imposing such measures may be evident by higher compliance cost, reduced investment, and stagnant industry growth in exchange for potentially exaggerated revenue projections – particularly for developing capital importing countries. Moreover, many stand against the BEPS Project’s illegitimate institutional creation story suffering from democratic deficits in an arbitrary grouping of old-school superpowers. Subsequently, as a legal scholar, tech start-up and climate justice advocate, I recommended to a United Nation (UN) delegate for The Bahamas that we all press breaks on BEPS because it infringed our tax sovereignty and negatively impact the ease of doing business.

Now The Bahamas is at the UN’s door trying to identify specific problems that a UN Tax Convention could address. The Financial Services Board (FSB) believes that the UN can establish a “global tax framework that is unbiased and linked to key global commitments and obligations, ensuring equity, transparency, and accountability.” They recommend, inter alia, “revisit[ing] the minimum global corporate tax requirement” or only implementing BEPS 1.0’s CESRA and transfer pricing rules. They also called for establishing a “holding” period on efforts for other international organisation’s tax agendas for willing participants of the UN Tax Convention. However, they support collaborations with said international organisations, which may undermine their purported objectives.

If this is The Bahamas’ stance, I remain wary of another layer to the already incoherent ITR. Such a UN Tax Framework will most likely function on top of other countries uncoordinated unilateral measures (e.g., the UK’s DPT is anticipated to remain) in conjunction with the BEPS Projects (i.e., the 15-point action plan and Two-Pillar Solution) and other coordinated international tax rules to increase the minimum effective tax rate for entitles beyond the scope of the initial BEPS Project mandate. This proliferation or as the Attorney General calls “combination” of taxation, unfortunately, can lead to double or multiple taxation, high compliance burdens, and uncertainty for businesses thereby significantly deterring activity in our financial services sector. Moreover, as far as I am aware, the government’s negotiation approach to champion the human right to development is unfounded and lacks locus standi.

In light of this, equitable voting rights, more non-inclusive Multidimensional Vulnerability Index (MVI) system, regular review, updates, and dispute resolutions mechanisms will not negate real residual challenges such as political decision-making interferences, democratic deficits within the OECD nor the UN, tangible and practical resources to implement the rules and sustainably manage the impact of crises like the COVID-19 pandemic and climate change. During the latter events tourism takes significant hits making this sector our new number 1. In many ways, as the Chinese’s economic mode of development would suggest, we must protect key economic pillars at all costs. 

But who am I to know? I am not the researcher and strategist in this vital area of legal studies that conceptualised the Global Carbon Tax in the wake of Hurricane Dorian’s devastating impact on my country. Then, was able to lobby Caribbean Regional Youth Leaders to incorporate it into a duly published climate justice resolution addressed to global leaders and institutions. Only to discover, half a decade later, perpetual traveling, corruption claims, underperforming climate justice pledges, carbon credit and crypto-currency scams, and easier pathways to more debt and wasted expenditure leading to inflation. Yet, I am. More on all this in our next segment of #FiveCentsFridays.

BOYKIN G SMITH

Nassau,

September 8, 2024.