On March 15 2002, The Bahamas formally replied to the OECD Forum on harmful tax practices and issued a commitment to cooperate with the OECD in its harmful tax practices initiative. This initiative seeks transparency and exchange of information, on request, for tax purposes. The OECD proposes mechanisms and deadlines for achievement of these objectives, including a mechanism for the exchange of information relating to criminal tax offences by 2004, and civil tax defaults by 2006.
The Bahamas has made its commitment conditional on the establishment of a level playing field among all members of the OECD and other countries with which The Bahamas competes in the provision of cross-border financial services. Accordingly, competitor jurisdictions such a Switzerland, Hong Kong, Singapore and others, for example Delaware, must agree to meet similar standards and set similar time frames before The Bahamas will proceed to implement any changes that will affect the confidentiality of institutions and clients based in The Bahamas.
This call for parity in the standards applicable to the regulation of financial services centres was endorsed in March this year at the Commonwealth Heads of Governments meeting in Australia.
The Bahamas' commitment is also based on the following conditions:
- The Bahamas must be a participant on an equal basis in any discussions held by the OECD Forum on the design of internationally-accepted standards for the implementation of the commitment.
- There must be coordinated defensive measures taken against those jurisdictions – including OECD member countries and non-member countries with whom The Bahamas competes – that fail to make an equivalent commitment or to satisfy the standards required by the OECD.
- The detailed implementation of any commitments not already provided for under Bahamian law is subject to the approval of the parliament of The Bahamas.
Bahamian law requires that information on the beneficial ownership of companies and partnerships, and on the trustees and beneficiaries of trusts established in The Bahamas must be maintained in The Bahamas by the relevant service provider. However, there are certain exemptions from this requirement where the business is introduced by an eligible financial institution from a prescribed jurisdiction. This information is not publicly available, but it is anticipated that, in the event of full implementation of the OECD commitment, this information will be subject to exchange pursuant to a formal tax information exchange agreement.
It should be noted that for the OECD commitment to be fully implemented, it will be necessary for The Bahamas to enter into individual tax information exchange agreements with the various member countries of the OECD. To date, The Bahamas has only entered into such an agreement with the US. This agreement is not yet in force and when in force will apply to criminal tax matters commencing on or after January 1 2004, and civil tax matters commencing on or after January 1 2006. Before the agreement can be brought into force it must first be ratified by an Act of the Bahamian Parliament. This agreement expressly prohibits speculative 'fishing expeditions' for tax information.
It appears that, notwithstanding the US tax information exchange agreement, The Bahamas has by and large obtained an honourable draw with the OECD. It has done so by making its commitment subject to several conditions which the OECD will be hard pressed to meet because it does not appear that it will be able to force jurisdictions such as Switzerland, Singapore and Hong Kong to comply with its harmful tax practices initiative.
Michael L Paton