‘Patently False’: Bahamas Not Violating Tax Rules

A former finance minister yesterday slammed as “patently false” suggestions by a prominent tax advocacy group that the Bahamas is “disregarding the rules” and flouting global information exchange and transparency standards.

James Smith, also an ex-Central Bank governor, hit out at the Tax Justice Network after its 2015 Financial Secrecy Index described the Bahamas as a “recalcitrant jurisdiction” that was constantly seeking to exploit loopholes in international tax regulations.

The Index, released yesterday, also suggested the Bahamas was among countries seeking to undermine the progress made in achieving greater global transparency and tax information exchange.

“Private sector ‘enablers’ and recalcitrant jurisdictions like Dubai and the Bahamas are beavering away finding exclusions and loopholes, being picky about which countries they’ll exchange information with, and simply disregarding the rules,” the Tax Justice Network said in a release accompanying the Index.

This provoked a furious response from Mr Smith, who told Tribune Business that the Bahamas had exceeded existing international tax information exchange standards as developed by the Organisation for Economic Co-Operation and Development (OECD).

“It’s stuff like that is patently false,” the former state minister of finance said of the Tax Justice Network statement.

“I believe the arbitrary number [for tax information exchange agreements] set by the OECD itself has been exceeded two times’ by the Bahamas in terms of information exchange.”

That point was grudgingly conceded by the Tax Justice Network, which ranked the Bahamas as ‘partly compliant’ with global tax information exchange standards.

Establishing a ‘benchmark’ of 53 Tax Information Exchange Agreements (TIEAs), its report said: “As of 31 May, 2015, the Bahamas had less than 53 tax information sharing agreements complying with basic OECD requirements.”

The Tax Justice Network’s assertion that the Bahamas is being ‘picky’ on tax information exchange could be a reference to the upcoming move to automatic agreements, and the fact the Bahamas will enter into such treaties on a bilateral (country-to-country) basis rather than a multilateral one.

Adopting the latter approach could overwhelm the Bahamas, as it would require this nation to enter into multiple automatic TIEA agreements with different countries simultaneously.

And these nations may include countries that may misuse, or be incapable of protecting, the private financial data belonging to high net worth clients of the Bahamian financial services industry.

Ryan Pinder, the former minister of financial services, cited these concerns as the explanation for why the Bahamas had decided to embrace automatic tax information exchange on a bilateral – not a multilateral – basis.

However, the loose language employed by the Tax Justice Network in its report is a potential threat to the Bahamas’ international business and financial services reputation, which has been based on it being a well-regulated, co-operative jurisdiction.

Hope Strachan, minister of financial services, did not respond to a Tribune Business request for comment on a report and index that ranked the Bahamas as the world’s 25 most secretive financial jurisdiction.

Mr Smith, though, said the inference that the Bahamas should automatically adopt automatic tax information exchange on a multilateral basis was offensive, and a threat to this nation’s sovereignty.

“It should be negotiated and let the countries decide,” he said, suggesting that the Tax Justice Network and similar organisations were demanding a ‘We do it, so you must do it, too’ approach.

“That has to stop, in my view,” Mr Smith told Tribune Business. “We wouldn’t have a country any more. You’re not at the table when they make the rules, yet you get directions from other countries who do make the rules.

“They really have to stop this now. It’s arbitrary and self-serving.”

Mr Smith added that major onshore centres, such as London and New York, had been the main beneficiaries of the outflow of business from the Bahamas and other international financial centres in the wake of multiple initiatives launched by the OECD and its affiliates since 2000.

He added that the likes of the Tax Justice Network were “just dropping us in these things” without understanding that, because the Bahamas levies no income tax itself, there is no “predicate offence” for evading such taxes in this nation.

Mr Smith also suggested that these organisations failed to understand that client confidentiality had been developed as a core banking principle hundreds of years ago.

The Tax Justice Network, in its analysis of the Bahamas, gave this nation some credit for “partly” complying with global anti-money laundering rules and participating in global automatic information exchange.

The same “partly” description was also rolled out for the Bahamas’ legal co-operation with other jurisdictions and international tax transparency.

However, the Tax Justice Network’s assessment of the Bahamas also claimed that this country effectively ‘promoted’ tax evasion and allows the incorporation of “harmful legal vehicles” to facilitate this.

The assessment also renewed long-standing complaints that beneficial ownership information, and details on trusts and foundations, are not readily accessible even though this can be obtained via the likes of court Orders.

About the only thing the Tax Justice Network got right was its ranking of the US and UK, respectively, as the third and 15th most secretive financial jurisdictions in the world – well ahead of the Bahamas.

Its secrecy Index pulled no punches when it came to the US, attacking its “hypocritical stance” of squeezing Switzerland, and the imposition of the Foreign Account Tax Compliance Act (FATCA) will offering nothing in return and maintaining the ‘haven’ status of several states.

“It is more of a cause for concern than any other individual country – because of both the size of its offshore sector, and also its rather recalcitrant attitude to international co-operation and reform,” the Tax Justice Network.

“It provides little information in return to other countries, making it a formidable, harmful and irresponsible secrecy jurisdiction at both the Federal and state levels.”