As published on tribune242.com, Monday 4 January, 2021.
The Government made an abrupt about-turn within 48 hours in extending the deadline for corporate Bahamas to comply with "substance reporting" demands by one month to end-January 2021.
Marlon Johnson, the Ministry of Finance's acting financial secretary, sent Tribune Business confirmation of the extension just two days after he informed this newspaper on New Year's Eve - the original compliance deadline - that "there are no plans" to give thousands of businesses more time to submit their filings.
However, the Ministry of Finance subsequently told the private sector that penalties stretching to administrative fines of $150,000, or $1,000 per day for ongoing non-compliance, will not be incurred for those submitting their "economic substance reports" by month's end as it sought to unclog the "log jam" caused by hundreds of companies seeking to file at the last minute.
"We recognise that many persons have not yet completed their reporting, and the Government thought it prudent - given this is the first time it is being done, and persons' understanding of the process - to give them an extra 31 days," Mr Johnson said yesterday of the Minnis administration's last-minute change of heart with respect to an extension.
"I don't know if we had any system issues. We had a log jam of persons seeking to become compliant at the end of the month, and like any system if the numbers exceed capacity we will have some issues. Our systems are functional and working. In any first iteration you will have these issues but, by and large, from what I've been told the system is working robustly with no technical issues."
This represents an about-turn from the position Mr Johnson set out on New Year's Eve, when he said the Government had no intention to extend the year-end deadline. "The original deadline was September," the acting financial secretary said.
"The Government has given a three-month extension to the original deadline already. As of today, there are no plans to extend the deadline." That stance, though, altered in a hurry.
"The Ministry of Finance wishes to inform the public that all companies or partnerships operating under the Companies Act, International Business Companies Act, Partnership Act, Partnership Limited Liability Act and the Exempted Limited Partnership Act should ensure that they have submitted their economic substance reports by no later than January 31, 2021," its statement said.
"Reports submitted by January 31 will not incur a penalty. Sole proprietorships do not need to submit an economic substance report."
Tribune Business revealed last Thursday how hundreds of Bahamian companies were involved in a frantic scramble to meet the 2020 year-end deadline to comply with the reporting obligations imposed by the Commercial Entities (Substance Requirements) Act 2018.
This law, part of legislation passed to meet the European Union's (EU) demands that Bahamas-based companies have a physical presence and conduct real business, earning income and making expenditures in this nation, for the first time requires all incorporated entities and legal partnerships to complete a so-called "substance reporting form" and obtain an "entity identification number" (EIN).
The Ministry of Finance clarified at the weekend that companies or partnerships that already possess a Taxpayer Identification Number (TIN), as a result of being VAT registrants, do not require an EIN, but many firms - distracted by the fall-out from COVID-19 and trying to ensure their survival - were caught off-guard by the need to complete and submit their declaration by year-end.
Rick Lowe, Nassau Motor Company's (NMC) operations manager/director, who last week voiced frustration over repeated unsuccessful attempts to download the "substance reporting form" from the Ministry of Finance's website, yesterday said many in the private sector believe this latest "red tape" is merely a step towards the imposition of corporate income tax in The Bahamas.
Agreeing that the month-long reporting extension "makes sense", Mr Lowe said he had still been unable to obtain the actual form that must be filled out and submitted to the Ministry of Finance. "There's supposed to be a tab to click on their website to allow you to access the form," he added. "Some people I spoke to said it's there, others said it's not. Ours isn't.
"Everyone was complaining about this substance reporting. Nobody knew about it at the end of September. It's just crazy. More red tape. A lot of people feel it's setting them up for corporate income tax. Everything is pointing in that direction. They need either more tax revenue or less spending, and they keep choosing the 'more tax' option."
Philip Galanis, the HLB Galanis managing partner, who last week revealed his firm and other accountants were encountering challenges in filing their clients' substance declarations "on a timely basis" due to problems connecting with the Department of Inland Revenue's (DIR) electronic portal, yesterday hailed the Government's decision to give the private sector an extra month's extension.
"Needless to say I'm very pleased that the Government has extended the filing deadline. It's the most prudent thing, and it's a decision that will benefit the Government and stakeholders in the private sector," Mr Galanis told Tribune Business.
"There was quite a bit of angst, and many companies I spoke to were not even aware they had to file. This gives everyone a bit of breathing room and cooling-off period to identify what needs to be done."
Mr Galanis said it was "a tremendous windfall" that companies "will not have to incur that cost" of fines and penalties that could have been levied upon them for failing to meet the year-end reporting deadline.
He added: "It gives us an opportunity to access the system and get the information filed on a timely basis. What is critically important is the [Government's] system is able to handle the heavy workload with all the filing taking place. All the bureaucratic impediments have to be overcome. That's critically important."
Mr Johnson, though, argued that the last-minute compliance rush - not the Department of Inland Revenue's system - was to blame for any technical problems experienced with submitting "substance" declarations. He also reassured that the extended deadline will not create any issues for The Bahamas in meeting its obligations to the EU.
"This is well within the discretion of the Government," he added, "and the intent is to get it done within the time period. The extra month gives those persons who are non-compliant time to do so. This is the first time it is being done, and understandably there are persons questioning whether they are eligible for this process.
"I feel fairly confident this is the final extension, and I encourage all those businesses that fall into the definition of eligible businesses to comply and work alongside their financial and legal experts to get it done. I would hasten to guess that many of them are in compliance already."
Mr Johnson said the year-end "substance reporting" filing for 2021 will likely be a smoother process because companies will be much more aware of the deadline, and their obligations and responsibilities.
He confirmed that the latest annual reporting imposed on corporate Bahamas was part of this nation's commitments to the EU in order to escape the 27-nation bloc's tax 'grey' list and/or blacklist, with the country agreeing to "ensure there is appropriate substance in our corporate registry".
Khrystle Rutherford-Ferguson, the Chamber of Commerce's chairman, also called for the Government to extend the "substance reporting" deadline just prior to the move's confirmation.
“There are some concerns with the portal itself, and there needed to be some clarity around what to do if the business had a TIN, and what to do if the business needed to register to get an EIN. There were some technical points that needed clarification," she said.
"There also were some challenges with regard to businesses being able to use the portal for registration and accessing the relevant tab that applies to their particular business. We would encourage anything that can be done to extend the deadline, because it does present a challenge for many businesses and this is not a situation where businesses do not want to be in compliance.
"All businesses want to comply with the requirements. However, to do that requires some extra time for others. Also, there needed to be some clarification around the different classes of businesses that fall within the Act. Because the Act identifies the fact that you have to register."
The Ministry of Finance statement added: "Companies and partnerships operating in The Bahamas that are 100 percent owned by Bahamian citizens and residents are required to submit an economic substance report but do not have to satisfy the economic substance requirements of having premises, an adequate number of employees and an adequate level of expenditure."