Bahamas Moves To Stop ‘Devastating’ Blacklisting
The Government yesterday moved to prevent the “devastating” consequences of a financial services ‘blacklisting’ by confirming its readiness to alter the Bahamas’ automatic tax information exchange approach.
A Ministry of Finance statement, issued yesterday evening, said the Minnis administration had “formally indicated its interest” to the Organisation for Economic Co-Operation and Development (OECD) in implementing the Common Reporting Standard (CRS) by acceding to the Multi-Lateral Convention for Mutual Assistance in Tax Matters.
K P Turnquest, the Minister of Finance, told Tribune Business that the multilateral policy switch “allows us to mitigate the threat” that the Bahamas would be deemed non-cooperative on tax information exchange, and subsequently named on a ‘blacklist’.
“Front and centre in our considerations was the need to mitigate any ‘blacklist’,” he said. “That would be devastating to our financial services industry. We’re prepared to do whatever’s required to demonstrate to our peers that we’re a well-regulated and compliant jurisdiction.”
The Government’s move was described by a well-known QC as “a prudent and appropriate step” to safeguard the Bahamas and its financial services industry, the so-called ‘second pillar’ of the Bahamian economy, from any ‘blacklisting’ by the likes of the OECD and European Union (EU).
With the EU threatening to produce such a list of countries it deems non-cooperative in fighting tax evasion by year-end, Brian Moree said the changed approach to CRS implementation had been anticipated by many in the financial services industry for some time.
The McKinney, Bancroft & Hughes senior partner told Tribune Business: “It is apparent from the statement issued today that the Government has indicated that the Bahamas is preparing to switch from a bilateral approach to a multilateral approach for the purpose of implementing the CRS.
“This position was anticipated by many stakeholders in the industry, and would appear to demonstrate the Government’s commitment to avoiding any risk of blacklisting for the Bahamas. The decision is in line with other jurisdictions which had initially adopted the bilateral approach, and to that extent it is not entirely surprising.”
Financial services sources, speaking on condition of anonymity, were more blunt in their analysis, telling Tribune Business that “the handwriting has been on the wall for some time” with regard to the Bahamas’ changed CRS approach.
A ‘blacklisting’ would have devastating reputational consequences for the Bahamas and its financial services industry, impeding its access to global financial services markets and raising business costs associated with greater due diligence and scrutiny.
With Hong Kong, Panama and the United Arab Emirates all choosing to migrate from the bilateral to the multilateral approach, the Bahamas has been left isolated and exposed as the only international financial centre (IFC) of significance still adopting the former route to implementation of the CRS, the global standard for automatic tax information exchange.
As the ‘last man standing’, the OECD and its members last year targeted the Bahamas via an international media onslaught in a bid to force this nation to alter its CRS approach, with the bullying tactics ultimately proving successful.
“In my view, it is a prudent and appropriate step to protect the financial services industry in the Bahamas,” Mr Moree added of the Government’s action yesterday. “Presumably it will be favourably received by the OECD. Hopefully they will now bring an end to the aggressive tactics and the pugnacious approach they have recently taken with regard to the Bahamas, and this will result in a more collaborative and co-operative approach going forward.”
The QC also acknowledged that the Government’s decision was effectively made for it, adding: “This appears to be a pragmatic decision given the realities of the options facing the Bahamas.
“It is important that the matter be resolved, and we quickly move to full implementation in order to meet the deadlines for reporting in 2018.”
The Bahamas has until September 2018 to meet its CRS commitments, and most in the financial services industry had prioritised avoiding any blacklisting as opposed to what was the better automatic tax information exchange implementation method.
The Bahamas previously agreed to implement the CRS 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.
Given that it had previously approved the ‘bilateral’ route as an option for CRS implementation, the OECD knows it is open to charges of ‘hypocrisy’ and ‘goal-post moving’ if it simply demands the Bahamas goes multilateral.
Instead, its officials are arguing that the Bahamas has left it too late to use the bilateral approach to meet its automatic tax information exchange commitments by the September 2018 deadline.
OECD representatives have employed the analogy of a high-rise building to describe the Bahamas’ situation, saying that all other countries were taking the elevator to the top via the multilateral approach, and this country was the only one using the stairs.
Monica Bhatia, who leads the OECD’s Global Forum secretariat, said the Bahamas was perceived as “the last tax haven standing” and an “outlier” because it was the sole financial centre of any significance to persist with the bilateral approach to CRS implementation.
Mr Turnquest confirmed that the OECD’s position was that the Bahamas “doesn’t have enough time to meet our commitments” under the bilateral approach.
“We felt it would be in our best interests, being the last country to be attracted to the bilateral route, to join the rest of the countries signing up to join the multilateral way,” he told Tribune Business.
The Ministry of Finance is the competent authority that will handle the automatic exchange of tax information, and Mr Turnquest said the Government had merely asked the OECD “to be invited to join” the multilateral convention.
“There are still mechanisms in place to do the bilateral, and there may be some reservations we may take with respect to the final agreement,” Mr Turnquest said.
The Ministry of Finance added of yesterday’s announcement: “This important development serves to emphasise, once again, the enduring commitment of the Government of the Bahamas and the banking sector to adhering to all international best practices, thereby assuring the continued participation of the Bahamas as a world-class financial services centre.”