‘We remain sovereign’Turnquest bemoans ‘hypocrisy’ as package of landscape-shifting financial services bills pass
The Bahamas has not conceded its sovereignty by complying with the transparency standards and international best practices required of this country by the European Union (EU) and the Organization for Economic Cooperation and Development (OECD). But it has complied because another round of blacklisting by those economic watchdogs could lead to a crippling of the financial services sector, Deputy Prime Minister and Minister of Finance Peter Turnquest said yesterday.
Turnquest, who issued those sentiments on the floor of the House of Assembly yesterday, sought to assure the Bahamian people that The Bahamas still maintains its right to establish domestic law. He lamented, though, that as the EU revises its blacklist this month, government had to work assiduously to keep this country off the list by moving a compendium of bills that will change the financial services sector forever, quickly through the legislative process.
Those financial watchdogs gave this country a deadline of December 31 to comply with its rules on tax matters to avoid being placed on a blacklist.
Turnquest outlined several scenarios that could result from a blacklisting, which included financial institutions leaving this jurisdiction, causing job losses; banks beginning ‘de-risking’ strategies, putting them at risk of losing access to the global financial system; and the possible withdrawal of correspondent banking relations from banks.
“This new regulatory landscape is taking place in a context of rapid change, rising nationalism in G20 counties around the world, and global upheaval in the financial services sector,” Turnquest said.
“It was brought about oddly, as a consequence of globalization, which these same actors promoted when it was to their advantage, with many countries now attempting to curtail the unintended consequence of the free movement and access of their citizens and money to offshore financial centers for investing and management purposes.
“As their citizens realized they could manage their affairs in international centers in a tax neutral way, and capital flowed in the reverse, globalization in terms of international financial services became bad and had to be stopped as they considered their tax base as being ‘unfairly’ eroded. This is quite the hypocritical situation, but it is also a serious reality we have to face.”
The Bahamas has continually shifted its policies to comply with international pressures on tax matters.
Turnquest explained yesterday that “our record of cooperation in tax matters with our international partners through mutual legal assistance treaties and tax information exchange agreements, and other bi-lateral cooperation agreements, has demonstrated our commitment to transparency standards and international best practices, and they have worked though we acknowledge the need for better efficiency in the processes”.
According to Turnquest, the OECD and the EU have the power of financial and trade sanctions and penalties that make it difficult for small countries like The Bahamas to ignore any compliance requests.
“Such blacklisting, even without the prospect of penalties, causes reputational damage that concerns existing and potential investors, and can significantly harm our economic stability and growth prospects,” he said.
“These are untenable risks for a young country with high debt, high unemployment, limited human and physical capacity.”
The Bahamas has now been forced to ensure that International Business Companies (IBCs) have substantial economic substance in this country. This means that those IBCs are required to have a bona-fide office, tangible assets with a direct connection to its business and be in compliance with all reporting obligations within the jurisdiction.
The Bahamas has also been forced to do away with “unfair” tax exemptions the EU sees as “harmful characteristics of The Bahamas’ tax regime”.
“We are removing the exemptions on the IBC in some cases and in other cases we are granting domestic companies some of the advantages previously enjoyed exclusively by IBCs,” said Turnquest.
“The net effect will be to equalize the two types of companies so that each is able to do what the other can.”
He said these businesses will be phased out of their preferential tax treatment over a period of three years.
This country has also been forced to have on hand a list of all the names of beneficial owners of IBCs.
Turnquest said given that financial services accounts for 15 percent of this country’s gross domestic product, government must do what it can to preserve the industry and its reputation.
The compendium of bills passed in the House last night.