Bahamas Under Rising Tax Exchange Pressure

The Bahamas is under growing pressure to bow to international demands that it automatically exchange tax information on a ‘multilateral’ basis, with the European Union (EU) and its members refusing to accept this nation’s preferred approach.

#Well-placed Tribune Business sources, both inside the Bahamas and internationally, have confirmed that the EU and its 27 members are holding back from negotiating automatic tax information exchange agreements with this nation on a ‘bilateral’ basis.

#The Bahamas previously agreed to implement the Common Reporting Standard (CRS), the Organisation for Economic Co-Operation and Development’s (OECD) global standard for automatic tax information exchange, via a bilateral approach that involved negotiating agreements on an individual country-by country basis.

#However, the OECD and its developed country members have been steadily increasing the pressure on the Bahamas to switch to the ‘multilateral’ approach, requiring this country to negotiate tax deals with all-comers at once.

#The Bahamas has been left exposed by the decisions of Hong Kong and Panama to switch from the bilateral to multilateral approach, which has left this nation as the last international financial centre (IFC) of significance that is sticking to the former.

#“There’s real concern that they have at least put on the table that they’re not going to deal with it on a bilateral basis,” a well-placed Bahamian source said of the stance adopted by the EU and its members.

#“There’s pressure being brought on the Bahamas to jump out of the bilateral and go into the multilateral treaty. They seem to be playing hardball on it. It’s getting very difficult, and I don’t think we’re going to be able to hold out. I’m fairly sure we’re the sole hold-out on bilateral of any consequence.”

#The refusal of the EU and its members to accept the Bahamas’ ‘bilateral’ approach – an approach previously accepted by the OECD itself – creates several potential threats for this nation’s financial services industry.

#With ‘the clocking ticking down’ to the Bahamas’ commitment to implement the CRS and automatic tax information exchange by 2018, the refusal of the EU and its member states to negotiate could jeopardise meeting this deadline.

#“There’s a concern that in not getting these countries to sign, you’ll find yourself to far behind the curve and we don’t want to be there,” the source, speaking on condition of anonymity, said.

#And, potentially more problematic, is the EU’s threat to publish a ‘blacklist’ of so-called ‘tax havens’ by year-end 2017.

#The Bahamas, should it fail to meet its CRS implementation deadline and negotiate automatic tax information exchange agreements with the EU and its member states, would almost certainly find itself on such a list.

#If that happens, the Bahamas’ reputation, integrity and ability to attract financial services business will be threatened, undermining the economy’s ‘second pillar’ and the sector that underpins the nation’s middle class.

#Allyson Maynard-Gibson, the attorney general, neither confirmed nor denied that the EU and its 27 member nations were refusing to negotiate with the Bahamas on a bilateral basis when contacted by Tribune Business yesterday.

#She told this newspaper that she “didn’t want to pre-empt” the arrival of OECD representatives in the Bahamas this week for meetings with both the Government and the Bahamian financial services industry.

#Members of the OECD’s Global Forum Secretariat are due to hold technical briefings on the CRS for the private sector on Wednesday and Thursday, and Mrs Maynard-Gibson said the Bahamas would seek to reinforce its ‘blue chip’ reputation.

#“We have been working very closely with them [the OECD], making it very clear to them that the Bahamas is a clean jurisdiction, honours commitments and welcomes close collaboration with the OECD and its members,” Mrs Maynard-Gibson said.

#When pressed by Tribune Business over the EU’s refusal to negotiate with the Bahamas on a bilateral basis, she replied: “I don’t have anything to add to what I said.

#“We’re looking forward to meeting with the OECD this week, and look forward to growing the sector on behalf of Bahamians.”

#Financial services industry sources said the Bahamas would still be able to “survive” if forced to ultimately adopt the multilateral approach to CRS implementation, as it would not be placed at a competitive disadvantage since all rivals were doing the same.

#However, Ryan Pinder, the former minister of financial services, had argued against the ‘multilateral’ route because the Bahamas currently has no tax architecture to facilitate the “spontaneous” handing over of the information it demands, the US excepted (FATCA).

#As a result, should the Bahamas be forced down the multilateral route, the costs, time and bureaucracy associated with compliance will likely increase for both the Government and financial services industry, further hitting this nation’s competitiveness.

#Mrs Maynard-Gibson did confirm that the Government had been “advised” of Hong Kong’s and Panama’s altered approaches, leaving the Bahamas as the sole ‘bilateral’ adherent.

#“We will be in discussion with the OECD on this and other matters, and will continue to send a very strong message to the world about the Bahamas being a clean jurisdiction, fully compliant, with the doors open for business,” the Attorney General added.

#“We’re determined that financial services, the second pillar of the economy, is the route by which the young people of this country can have a bright future.”

#Tanya McCartney, the Bahamas Financial Services Board’s (BFSB) chief executive, told Tribune Business that the “bottom line” for the industry was to avoid any EU ‘blacklist’ at all costs.

#“There is acknowledgement from the industry that pressure to go the multilateral route continues to be applied,” she said.

#Ms McCartney, though, said there had been no change to the Bahamas’ CRS policy position yet, and the industry would respond appropriately if and when it altered.

#Expressing confidence that the Government had dedicated sufficient resources to ensure the Bahamas’ compliance with the global automatic tax information exchange standard, Ms McCartney said the industry was eager to listen to the OECD representatives before assessing whether there were any repercussions for this nation’s position.

#“The bottom line is this,” Ms McCartney told Tribune Business. “The industry doesn’t want to see the Bahamas ‘blacklisted’, and to the extent we have to take action to avoid a blacklist, it will be done.”

#She added that “the implications” from any ‘blacklisting’ were of most concern to Bahamas-based financial institutions.

#“It’s not about ‘blacklisting’; it’s about global perceptions of the jurisdiction,” Ms McCartney told Tribune Business.

#“If our integrity is going to be called into question as a jurisdiction, if the risk profile is going to be increased, we want to avoid that at all costs.”

#The EU, in rating 81 different jurisdictions for their co-operation on tax matters last September, ‘red flagged’ the Bahamas and nine other countries – mainly its fellow IFCs – for having either no, or a zero rate, corporate income tax.

#This, though, has now been dropped, seemingly after pressure from the UK worried about its IFC dependencies, plus European nations who themselves have ‘low tax’ regimes. A ‘zero’ tax rate will now only trigger a closer look at a jurisdiction’s taxation rules.

#The Brussels-based EU Commission, though, also placed a ‘red flag’ against the Bahamas when it came to transparency and the exchange of tax information, although on the third and final criteria – the existence of a ring-fenced preferential tax regime – this nation received a clean bill of health.

#The EU has so far sent requests to 92 countries, including the US, in a bid to assess practices that could be seen as enabling tax avoidance.