When I last wrote in this publication on economic substance, The Bahamas had recently issued draft legislation for consultation. Over the past year, The Bahamas, like many other financial centres around the globe. has passed legislation implementing economic substance requirements in line with the OECD’s Base Erosion and Profit Shifting (BEPS) Inclusive Framework (IF).
While there are variances in terminology, the effect of the legislation and guidance implementing economic substance is similar across jurisdictions: with some limited exceptions, entities organised in the relevant jurisdiction and engaged in specific activities identified by the OECD as geographically mobile preferential regimes are now required to demonstrate substantial economic presence. As of the beginning of 2020, over 120 jurisdictions in total have committed to the implementation of BEPS. The Bahamas was one of 18 international financial centres to join the Inclusive Framework (IF) on BEPS in 2017 and after passing the Commercial Entities (Substance Requirements) Act, 2018 (CESA) in December 2018, the Competent Authority (the Ministry of Finance) has now opened the jurisdiction’s electronic portal for CESA reporting.
The history of BEPs bears brief mention although it is not the focus of this article. In 2012, austerity measures implemented by the G-20 provided the…
It will not have escaped the attention of anyone connected with the offshore financial services industry that the European Union has imposed ’economic substance’ requirements on offshore financial centres in an effort to curb “harmful tax competition”. Indeed, such is the recent media and political attention devoted to this issue, it has become a kind of ‘offshore Brexit’, a national discussion, and dinner party topic on which the pros and cons are debated.
For every optimist there is a pessimist, but many are on the fence: hopeful but cautious about what this might mean for their country, their corporate service company, accounting or law firm, or indeed any business that relies directly or indirectly on the revenue generated by offshore business.
The objective of the EU is straightforward: to increase its tax base by reducing the ability of “geographically mobile” corporations to avoid tax through using so-called “shell companies” and other structures in offshore financial centres. To the casual observer, it must seem obvious that if the EU’s initiative is effective then it will benefit the EU at the expense of the offshore financial centres. If, as seems inevitable, large numbers of entities discontinue their offshore operations as a result, how can that be anything other than bad news for the offshore financial service industry?
Each of the keys British Overseas Territories (Bermuda, the Cayman Islands, and the British Virgin Island…