Government hopes to have The Bahamas off of the European Union’s (EU) black list by the end of the year, Attorney General Ryan Pinder said on Friday.
Pinder, who made the remarks at STEP Bahamas’ first ever conference, explained that the EU does its review twice per year. He explained that the government is shooting for the last re-rating exercise of the year carried out by the EU, hoping for this jurisdiction to be found as compliant and struck from the black list.
He added that the problem that led to The Bahamas being added to the list – a deficient economic substance reporting system – is currently being rectified.
Pinder said the government has signed a contract with assurance, tax, and financial advisory services firm BDO to build a new system that the EU would find suitable.
“The next round of review is later this year. I think they come in August and make a determination in October,” Pinder told reporters following is address to STEP.
“We’re well on track, as you would have heard in my speech, to putting in a new portal, and new implementation of the economic substance reporting. Unfortunately, the prior attempt was not adequate.
“And coupled with COVID and other challenges that countries had, we just were not able to comply with the requirements of implementation. It’s not a legal issue, it’s an implementation issue.
“And we believe that the new portal we’re getting that’s provided by BDO – which is the same company that does our beneficial ownership reporting portal – will result in us being compliant.”
Pinder explained during his speech that the the Commercial Entities (Substance Requirements) Act, 2018 (CESRA) came into force in The Bahamas on January 1, 2019 and requires commercial entities to have economic substance in The Bahamas.
He added that the former administration attempted to use the Department of Inland Revenue framework to carry out substance reporting, but he explained: “This method was ineffective and presented many problems with the actual administration of the reporting, and implementation was challenged given the shutdowns related to the pandemic and the lack of human capital working at the time.”
BDO, which also does the economic substance reporting for the British Virgin Islands and Barbados, is well known to the EU. The company already manages The Bahamas’ beneficial ownership reporting system and is on its way to completing the new system, Pinder told the STEP conference.
“The contract has been signed, and they are working on framing the portal for implementation,” he said.
“We are also looking to put in place a framework to allow us to verify, whether through inspection or audit, or some other acceptable method, the accuracy of the data being used in the substance reporting.
“Those who follow this alphabet soup of obligations would know that certainly the first step in all of these matters is actually putting it in place. But when they come and review you after you put it into place, the second step is they want to see that the data is legitimate and verified, and for the purpose for which it has been used.
“In this instance, for the reporting on proper economic substance. For taxation it’s for reporting proper information exchange automatically and whether that data supports it. So, that’s then always the next step after implementation. It’s can you show and demonstrate through objective means that the data is correct.
“We’d love to be in a position to be rated by the EU as a compliant jurisdiction by the end of this year.”
Pinder also touched on the G20 and Organization for Economic Cooperation and Development (OECD) Inclusive Framework on Base Erosion and Profit Shifting, that is set to reform the global taxation system.
He explained that the framework set to be implemented would have this country impose a 15 percent corporate income tax on businesses in The Bahamas with group gross annual earnings of 750 million euros or more.
He said a local study on the effect has been completed and will soon be released for public consultation in the form of a green paper.
“A corporate income tax is clearly a novel approach in The Bahamas and will have significant regulatory reform for the country in tax administration, affecting almost every area of the cross-border economy,” said Pinder.
“The OECD continues to prepare countries for the implementation. On February 27th, 2023, the OECD’s Centre for Tax Policy and Administration held an OECD Tax Talks webinar where a key topic for discussion was the two-pillar solution implementation aspects and capacity building to implement the two-pillar international tax package effectively.
“We as the government of The Bahamas have been working internally to prepare for the implementation.”
Pinder also hailed this country’s success in being only one of six countries in the world to be compliant or largely compliant with 40 out of 40 of the Financial Action Task Force (FATF) Recommendations. However, he lamented that FATF published a consultation paper with possible revisions to Recommendation 25 that deals with transparency and beneficial ownership of legal products such as trusts, explaining that these entities could begin to take ownership disclosure event further than they have before.
“FATF has asked consultation respondents whether it should create a separate, standalone definition of ‘beneficial owner’ in the context of legal arrangements, distinct from that for legal persons and also seeks suggestions on strengthening the requirement for countries to have access to beneficial ownership information in respect of legal arrangements. These clearly will have material implications for our trust business in The Bahamas,” Pinder said.
“Based on some of the consultation responses we see there is a constituency that wants the disclosure obligations to go even further. For example, the Tax Justice Network is on the record in their published comments to the FATF request advocating that the only adequate measure is to establish central registries of beneficial ownership and to make information publicly available.
“Clearly the recent EU ruling on public registers would have an effect on this advocacy.
“They [Tax Justice] take it even further, advocating that the FATF should prohibit discretionary trusts or at least consider them to be high risk for secrecy, sanction avoidance and prevention of asset recovery. These positions are rather extreme, but they are the comments being submitted to the FATF.”
