THE Government's decision to make three tax information exchange agreements (TIEAs) retroactive to January 1, 2004, for criminal tax matters could "give rise to legal challenges", a leading accountant has warned, with the Bahamas' presence on the G-20/OECD 'grey list' making it "difficult to open new accounts in Europe".
Kevin Seymour, PricewaterhouseCoopers (Bahamas) Freeport-based partner, told the Grand Bahama Business Outlook conference that an informal survey of senior Bahamas-based private banking executives had elicited concern "over the Government's response thus far" to the G-20/OECD demands.
The suggestion was that the Bahamas was "the only major player" in international financial services circles still on the 'grey list', and Mr Seymour said: "According to some of these executives, this state of affairs is making it increasingly difficult to open new accounts in Europe."
According to the Tribune, the Government has now signed 11 TIEAs with other nations, one short of the G-20/OECD demands for all countries to sign a minimum of 12 such agreements if they are to escape the so-called 'grey list'. Prime Minister Hubert Ingraham expressed confidence that the Bahamas would comfortably exceed this threshold by having 19 in place at the end of this month, with some delays in signing caused by other countries taking their time to process and ratify the treaties.
From its own soundings, Tribune Business understands that the Bahamian international financial services industry is in a 'wait and see' mode, anticipating this country's escape from the 'grey list' on to the 'white list'. Yet concern remains that the 'devil is in the detail' with some of these TIEAs, and the long-term impact on the industry is currently uncertain.
Mr Seymour also highlighted the fact that the UK, France and Netherlands had all obtained TIEAs with the Bahamas that made the exchange of information for criminal matters retroactive to January 1, 2004. Tribune Business had also previously highlighted this, and the potential negative implications this might have on client and financial intermediary perceptions of the Bahamas, in addition to questions as to why only these three nations were granted such a concession.
Subsequently, legal sources told Tribune Business that the January 1, 2004, date likely related to the Bahamas' original letter to the OECD on March 15, 2002, agreeing to comply with the organisation's demands for greater transparency and a willingness to enter into TIEAs provided there was a 'level playing field' on the issue.
In his letter, then-finance minister Sir William Allen committed the Bahamas to agreeing that the first date for "the effective exchange of information for criminal tax matters" would take effect for the first tax year following December 31, 2003, hence the January 1, 2004, date.
Meanwhile, Mr Seymour said the Bahamas-based financial services executives he had consulted held "mixed views" about the sector's future in this nation.
He added: "The views ran the gamut of seeing the Bahamas becoming more of a niche player in areas such as personal trust and escrow services, and perhaps focusing on new markets in Latin America and Asia.
"At the other end of the spectrum, the view expressed was that of offshore banking eventually becoming an endangered species. Notwithstanding the differing views, what is not disputed however is the fact that the goal post on this make-believe level playing field continues to move."
Mr Seymour also warned that the Bahamas, in common with other international financial services centres, would be subjected to the 'Peer Review' process of the OECD's Global Forum. He suggested that this concept was "about as popular as a prostate examination", and the two phases - examining the legal and regulatory framework for tax information exchange in each country, and implementation of standards governing this information exchange - could again ultimately lead to a nation being placed on a 'grey' or 'black' list again.
And while the Bahamas had obtained convention tax deduction benefits in its TIEAs with Monaco and Belgium, Mr Seymour said the agreements had "limited benefits" for this nation as it had no income taxes.
The benefits, therefore, were titled in favour of the other countries, and Monaco and Belgium are not major suppliers of convention/group business to the Bahamas.