‘Survival Of Financial Services Not An Option’

A prominent QC yesterday backed calls for the Bahamas to switch to a ‘low tax’ business model, warning: “The survival of financial services is not an option.”

Brian Moree QC, senior partner at McKinney, Bancroft & Hughes, said the Bahamas had to “figure out how to adjust its business model” and carve out a competitive, sustainable position in the ever-evolving global financial services marketplace.

He told Tribune Business that the industry’s survival was critical to the Bahamian economy’s well-being given that there is “nothing on the horizon” to replace it, both in terms of its GDP impact and ability to sustain the country’s middle class.

Mr Moree said the Bahamas needed to build upon its private wealth management and estate planning foundation, enticing more clients to follow their assets and make this nation their main residence/domicile.

He argued that the sector’s future would also be based more on “physical presence”, with financial services providers basing their management and offices in the Bahamas.

Family offices, catering to the needs of high net worth clients, will become an increasing feature of the sector, Mr Moree added, with Immigration and tax policy changes underpinning a new business model.

“This is not a novel suggestion, but I certainly take the view that we have to transition from a ‘no tax’ platform to a ‘low tax platform,” Mr Moree told Tribune Business. “I think that certainly has to be part of the future.

“That transition is not as difficult as it might be. There are already numerous forms of taxation, certainly for domestic businesses.

“As far as international business, we’re going to have to shift the model to a ‘low tax’ jurisdiction, where we can look at taking some advantages from double taxation treaties and investment agreements that protect investments coming through the Bahamas,” he added.

“There are numerous international treaties and agreements the Bahamas could benefit from if we transitioned to a ‘low tax’ jurisdiction as opposed to what we have been recognised as: A ‘no tax’ jurisdiction.

“Clearly, these things have to be looked at as we figure out as a jurisdiction where the future of the industry is going in the Bahamas. The survival of the financial services industry in the Bahamas is really not an option for us.”

Mr Moree’s backing adds further weight to a growing sentiment in the Bahamian financial services industry, and among associated sectors, that this nation’s taxation structure requires fundamental transformation.

Tanya McCartney, the Bahamas Financial Services Board’s (BFSB) chief executive, told the recent Bahamas Business Outlook conference that the organisation was in the initial stages of hiring consultants to conduct a review of this nation’s tax structure.

She added that such a review was necessary to assess whether the Bahamas’ 57 year-old taxation system was best suited to “the changed international operating environment”, and determine if change was required to place the Bahamian financial services industry on “a proper footing”.

Mr Moree’s comments, though, represent the first time that such a senior private sector figure has openly supported switching to a ‘low tax’ business platform as a reform crucial to financial services’ survival in the Bahamas.

Several financial services practitioners, such as Dominion Management principal, Paul Moss, have long argued that the Bahamas should switch from a ‘no tax’ to a ‘low tax’ model in terms of income, corporate, capital gains and inheritance taxes.

They believe that such a move will enable the Bahamas to shed the ‘tax haven’ image and give it extra legitimacy, while also helping to encourage high net worth individuals to follow their assets here and make this nation their primary domicile.

A ‘low tax’ model would also open up the possibility of entering into ‘double tax’ treaties, a move that could encourage more businesses to establish a presence in the Bahamas, as any profits they repatriated home would only be taxed once – at this nation’s lower rate.

The Bahamas would likely meet little international resistance to imposing a ‘low income tax’ regime solely on international businesses and clients, as the Organisation for Economic Co-Operation and Development (OECD) long ago dropped its opposition to ‘ring fencing’ domestic economies.

However, some observers have suggested that the Bahamas is already too late, and has ‘missed the boat’, on switching to a ‘low tax’ platform, given that Barbados and other international financial centres (IFCs) are already established in this space.

They also believe that the Bahamas lacks the necessary responsiveness, ‘business ease’ and other support systems and policies to ensure a successful transition.

Mr Moree, meanwhile, said a new, revived business platform was essential if the Bahamas was to sustain “such a vital part of our economy”.

He added: “If we’re going to continue to sustain the middle class and enjoy the quality of life we have, this industry, which is the second largest, has to be preserved.

“It is absolutely critical to the future of our economy as we currently know it. There’s nothing on the horizon that would replace the significant contribution the financial services industry makes to our GDP and the financial stability of our middle class.”

Emphasising that the financial services industry’s viability was a national priority that “transcends political affiliations”, Mr Moree called for the “best minds” to be employed in devising a new business model.

Pointing out that international developments were impacting the financial services industry “on almost a monthly basis”, the well-known QC said the Bahamas needed to position itself to compete in a climate of full regulatory and tax transparency/compliance.

On the positive side, Mr Moree said international financial centres (IFCs) such as the Bahamas played a vital role in international capital and investment flows, something that would enable them to carve out a valuable niche.

And with the world’s high net worth individuals increasing in numbers, he added that the demand for this nation’s wealth management services could potentially increase further.

“The challenge for the Bahamas is how best to adjust our business model to fill that space,” he told Tribune Business.

“To put it in the most basic terms, the IFCs are going to occupy a space in the global economy. That’s good news, because there are people that express a view that there’s no future role for IFCs.

“I personally do not agree. All the data and statistics show the IFCs serve a useful and important role for the G-20 itself. It’s in their own self-interest for fully compliant, efficient IFCs to do what they do best, which is to collect and pool large amounts of capital for reinvestment in their own industrialised economies.”

With “physical presence” in the Bahamas likely to become “increasingly important” for the financial services industry and its institutions, Mr Moree said the Bahamas needed to balance Immigration policy between its use as “a tool of investment” and meeting the needs of locals.

“We need to look at the home [family] office market,” he added. “You can’t run an entire jurisdiction off that product, but it’s important.”

Mr Moree also called for the Bahamas to continue its focus on Latin America as a key source of business, and also to broaden “our footprint in Asia”.