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By NEIL HARTNELL
Tribune Business Editor
NO SINGLE foreign law is likely to impact the Bahamian financial services industry more than the US Foreign Account Tax Compliance Act (FATCA), a well-known accountant telling Tribune Business yesterday its effects would be "the same or greater" than previous international efforts.
Lawrence Lewis, a partner at Deloitte & Touche (Bahamas), said that while the likes of the US Qualified Intermediary (QI) initiative, and OECD/FATF efforts, had tended to focus on one particular aspect of the financial services industry, Washington's FATCA initiative would touch multiple areas simultaneously.
"In order of magnitude, I would say it is t ...
The Atlantis resort on Paradise Island is a symbol of economic prosperity, growth and wealth for The Bahamas. The luxury resort, which opened its doors in the early 1990s, came at a time when the country was struggling financially and needed a beacon of hope to guide it to economic stability.
When Sol Kerzner, hotel mogul and chairman of Kerzner International, opened the hotel in 1994, the country was in recession and experiencing a low point in its tourism performance. He was almost single-handedly responsible for the revitalization and expansion of the tourism sector.
The Bahamas owes a great debt of gratitude to Kerzner. However, current anxieties over the future of Atlantis are due to the fact that the nation had ignored the wisdom of its grandparents - don't put all your eggs in one basket.
Nearly two decades after Kerzner bought the Paradise Island property, and several expansions later, the future of the mega-resort is unclear. Kerzner recently defaulted on a $2.5 billion loan held by creditors overseas. The Atlantis resort, One&Only Ocean Club and Kerzner's Mexican holdings were collateral for the loan.
A group of senior lenders who are owed $112 million out of $2.5 billion went to court in Delaware and argued that minority lender Brookfield Asset Management was getting an unfair advantage, in regards to the debt-for-equity deal.
Brookfield pulled out of the deal just over a week ago after Judge Donald Parsons granted the lenders a temporary restraining order and questioned why the Toronto-based asset manager, as the most junior of the seven creditors, should be the only one to benefit from equity ownership of the "uniquely valuable" Paradise Island resorts.
The collapse of the Brookfield deal compounded fear and speculation of possible job losses and foreclosure at Atlantis.
However, at a recent press conference last Wednesday, Prime Minister Hubert Ingraham reminded reporters that when he came to office in 1992 Resorts International on Paradise Island was in bankruptcy.
"We did not panic in The Bahamas at that time. When Kerzner came in he bought it out of bankruptcy," he said.
Atlantis has five percent of The Bahamas labor force on its payroll.
It's a frightening number when you take into account that if it were not for the impending opening of the Baha Mar resort on Cable Beach, there would be no other entity, government or private, that could support these jobs.
This is a fact that never sat well with many people.
"First of all, I was always concerned about Atlantis being there and hiring up to 7,000 to 8,000 at one time in any country," said Leon Griffin, president of the Bahamas Taxi Cab Union.
One private employer holding the fate of all those employees in its hands is a recipe for disaster, Griffin said. "That is certainly dangerous what could happen or might happen. That has been my fear all the while [with] Atlantis and Baha Mar. I [have said] to government to be very cautious. I would prefer that kind of investment divided into four or five sections around The Bahamas.
"It's very scary because it's our leading destination - I'm hoping for the best," Griffin said.
He added that Atlantis accounts for at least one third of taxi drivers' business. "The airport is considered an important area, then Atlantis/Paradise Island, then downtown and Cable Beach. If they close down, we might as well forget it. I hope every Bahamian, even if he doesn't work in Atlantis, will pray that things go well," he said.
For each of the 8,000 direct jobs at Kerzner there are an additional 1.25 to 1.5 indirect jobs in the economy. This means 18,000 to 20,000 jobs or 15 percent of all jobs in our economy, are related directly to the operations of Kerzner International in The Bahamas.
In addition to the jobs it supports, Atlantis' additional contributions to the Bahamian economy from Kerzner's operations include:
Local purchases of goods and services - $190 million annually; Electricity consumption of the order of $47 million paid annually to BEC; Business license fees - nearly $27 million annually (inclusive of resort hotel license fees and licenses for joint venture time share and condominium operations); Room occupancy tax - $20 million annually.
As far as The Bahamas is concerned, Atlantis is too big to fail. Ingraham has said that at the moment there is no need for concern as a foreclosure would not be in the best interest of Kerzner or his creditors.
"The lenders themselves would like to collect their money back. In order for them to collect their money back, it is important for Kerzner's property on Paradise Island to be successful," he said.
It is hard to shake the feeling that some of this wound is self-inflicted.
Ingraham said he believes that responsibility for this current predicament rests with the former Christie administration.
Kerzner International now has a loan for $2.5 billion and the security for the loan is the properties on Paradise Island. Much of the loan was spent outside The Bahamas.
"It was inappropriate and wrong for the Government of The Bahamas (Christie administration) to agree for the properties on Paradise Island to be put up as a security for a loan where the proceeds of the loan were going to be spent outside The Bahamas. That was a big, big mistake," Ingraham said.
The whole situation also raises the question of whether The Bahamas has sufficient laws and regulations to protect itself against the failure of a major employer.
Raymond Winder, managing partner of Deloitte and Touche Bahamas, said that because of the lack of bankruptcy laws and regulations similar to the U.S., any creditor could put Kerzner into receivership.
"We don't have a situation that would allow an organization in financial distress to be able to ward off creditors and others who would seek to take advantage of the organization and allow it to go through a process of reorganization," he said.
However, Winder said he remains optimistic that a few months from now things will not be as dire as they are now.
"I don't anticipate that it's going to be protracted because clearly Kerzner in order to continue [to] meet its obligation and being able to present a positive face to the international community needs to have this resolved," he said.
While the future may, for the moment, be cloudy, there is still a bit of hope on the horizon.
Kerzner officials and the government have said bookings are getting better and Ingraham has said the government does not expect there to be job losses at the Paradise Island property.
"If they say bookings are strong and looking up, then you would know the odds of there being significant reduction of employees are slim in the short term," he said. "Obviously one can't speak of a year from now when one looks at Florida maybe granting full licenses to casinos. In the short and medium term Kerzner appears to have no reason to lay off staff.
"I also do not believe Atlantis has a considerable [number] of non-productive employees that any investor has to get rid of. In any business operation, clearly if there's a significant decline in revenue then a business will have to make an adjustment," Winder said.
However, President of the Bahamas Chamber of Commerce Winston Rolle said while Atlantis reports that bookings are up, Bahamians should be concerned about Atlantis' debt crisis.
"One of the things we also need to be mindful of, we talk about bookings but what are the rates? [We are] already subsidizing air travel to get people here, so are we booking rooms at reduced rates to get the numbers up? We have to look at booking quality not just quantity," Rolle said.
"The magnitude of Kerzner going into a recession impacts all of us, impacts all we do, the amount of government revenue through casino tax, NIB, import tax on goods they bring in, departure tax from tourists that affects government's revenue and if that goes down the government has to look at what social program to cut back on. It's very widespread."
Despite all of the assurances and prognostication, no one knows precisely what these seven lenders are going to agree to. At the moment, the property is still owned by Kerzner and no jobs have been lost.
The Financial Bowling League concluded it's first half play with the Fidelity Bulldogs winning the half and the Coca-Cola Strike Force Team, who dominated the last night of league play, placing second. Both teams secured playoff spots since the top two teams from each half qualify for the playoffs. The top bowlers of the night were Kevin B. Williams of Coca-Cola with a 215 second high game and the high set of 564. The runner-up player was Greg Taylor, also of Coca-Cola, with a 559 three-game set. Sammie Symonette, another player from Coca-Cola, toppled the pins for a 228 high game of the night. The ladies were led by Monique Miller, also of Coca-Cola, with a 180 game and a 505 set, followed by Patrina Cartwright of the Sunshine Insurance Shockers with a 462 three-game set. The second high game was a 174 from Rochelle McPhee, another Sunshine Insurance player.
Fidelity Bulldogs 2, Coca-Cola Strike Force 1
Leno Corporate Services 2, BAF Financial 1
Sunshine Insurance Shockers 2, Deloitte & Touche 1
Forsythe Communications 2, Budweiser Strikers 1
The Bahamas' compliance under the Foreign Account Tax Compliance Act (FATCA) is "progressing," according to a stakeholder.
Lawrence Lewis, a partner at Deloitte & Touche who is leading his firm's work on FATCA, said that while the government is moving forward to implement the Model I Intergovernmental Agreement (IGA) and could be officially signing on in early 2014, the Bahamas still needs to introduce legislation that would protect financial institutions and clients under FATCA.
"There's going to be legislation that's attached to it because it will need to be something that will then give the financial institutions the right and the obligation to pass customer confidential information to our competent tax authority, then interact with the IRS so there will have to be legislation as to not expose financial institutions that will be going through that process," he told Guardian Business.
"I have not been privy to any legislation, but I do understand that certainly wheels have been turning in that regard.
"It's likely to happen not too late in the new year. Obviously, from an organizational standpoint, even though it has been announced the way that we're going, there is a certain level of comfort that comes with the certainty of actually having signed on and having the agreements in hand, and everybody being able to see it and what's required under it."
FATCA was signed into U.S. law in 2010 through Hiring Incentives to Restore Employment Act. It seeks to identify U.S. taxpayers with accounts at foreign financial institutions and attempts to enforce the reporting of those accounts.
The IRS released Notice 2013-43 pushed back the Foreign Financial Institution (FFI) Registration Portal opening and extended most of the FATCA deadlines established by the final regulations.
The Foreign Financial Institutions (FFI) Registration Portal opened on August 19, 2013, a little over a month later than previously planned.
At that time, FFIs got the chance to start setting up their profiles and adding entities without actually committing to signing or registering, until January 1, 2014.
The IRS also extended other compliance deadlines including withholding, onboarding and pre-existing account remediation by six months.
Despite the government officially releasing the draft bill and regulations that would govern the proposed value-added tax (VAT), stakeholders in the accounting industry are still anxiously waiting for the new tariff schedule to be released.
Until that is released, President of the Bahamas Institute of Chartered Accountants (BICA) Jasmine Davis said they are left to review concepts. She is calling the schedule a "key piece to the puzzle" for accountants.
"We have had calls from clients and the general public, asking if it is going to be released soon so that businesses can go ahead and do their budget forecasts," she explained yesterday.
"Of interest to everyone is the new schedule that would be released as a result of The Bahamas' accession to the World Trade Organization (WTO), where it is that the tariffs and the customs duties are going to be decreased and what the taxes are going to be on top of that. So without that schedule, we're really just looking at concepts per say."
During a luncheon at Luciano's of Chicago restaurant on Tuesday, BICA unveiled its VAT committee. While Davis maintains that the July 1, 2014 launch date for VAT is doable, she admits that it's very ambitious.
"There are still a lot of questions that need to be answered. The Ministry of Finance has about six months to educate the public and iron out all of the kinks," Davis pointed out.
"In the VAT legislation, we have looked at the accounting and penalty aspects of it. We have also looked at compliance and reporting, but we haven't really had an opportunity to benchmark it against other jurisdictions. We're going to be utilizing the resources available to us through the regional tax committee of the Institute of Chartered Accountants of the Caribbean, of which I am the vice president. We will able to report from there."
As a result of VAT, Davis said she has seen the evolution of the need for a tax specialist in this jurisdiction.
For Raymond Winder, managing partner at Deloitte and Touche, his main concern when it comes to VAT is the impact the tax will have on consumers.
"Hopefully there will be sufficient exemptions and those individuals that are on the bottom end will not feel the impact of the increase that is due to VAT," he said.
"We are going to have price controls to ensure that those in society who are at a lower level will not feel the increase of prices. The overall impact (on price levels) could be something like five percent, depending on what rate they want to peg VAT at."
The government plans to implement VAT at a rate of 15 percent, and 10 per cent for hotels and food and beverages sold in hotels, on July 1, 2014.
With the debate intensifying on the introduction of value-added tax (VAT), Raymond Winder, managing partner at Deloitte and Touche, doesn't believe that form of taxation is "appropriate" for web shops.
"You have to remember that VAT ultimately goes to the consumer, so if you tax the web shops VAT, what they would do is pass it on to the players. That's not what you want," he said yesterday.
"You're really saying that you have enterprises that are generating huge profits and they should be making more of a contribution to government. That's what you're saying and that will not happen through VAT. Clearly, it's unfortunate for us to have enterprises the size of web shops in The Bahamas and they are not feeling some sort of taxation. But I'm not sure if value-added tax is the appropriate taxation for the web shops."
As a solution, he suggested that web shops be made to pay higher business licenses taxes.
Winder's comments are a far cry from those of Philip Galanis, managing partner at HLB Galanis & Co., who recently told Guardian Business it's an area that VAT should be added to because the country's
gaming sector is currently "revenue central".
"I think the issue is really going to be whether or not the winners are going to be taxed at the VAT level because I don't think they are," Galanis said.
According to the Valued Added Tax Bill 2013 and the Value Added Tax Regulations 2013, while most goods and services, including cable, phone and electricity bills for most consumers, will be "vatable", some services and goods will be exempted from the new tax such as games of chance, gambling and lotteries.
But Galanis said it's something the government should reconsider.
His comments were backed up by a International Monetary Fund report on tax reform in The Bahamas, titled "Tax Reforms for Revenue Buoyancy", which suggests that spending on gambling activities should be subject to value-added tax in the same manner as other forms of consumption expenditures.
Robert Myers, co-chair of the Bahamas Chamber of Commerce and Employers Confederation's Coalition for Responsible Taxation, has suggested that in the interest of bolstering government revenues and fairness web shops must be subject to taxation of some kind.
By NEIL HARTNELL
Tribune Business Editor
Enhanced reporting requirements could give the Bahamian financial services industry the opportunity "to go after US clients" once again, a leading accountant said yesterday, pointing out that marginal, per client compliance costs would be "substantially reduced" by upfront systems investment.
Lawrence Lewis, the Deloitte & Touche (Bahamas) partner, speaking to Tribune Business after addressing a Bahamas Financial Services Board (BFSB) seminar on the issue, said the US Foreign Account Tax Compliance Act (FATCA) provisions would create a regulatory 'level playing field' since all jurisdictions would be required to adhere to i ...
The Tax Information Exchange Agreement (TIEA) between The Bahamas and Canada, which could result in greater foreign direct investment and employment opportunities, came into force Wednesday.
Canada's Department of Finance made the announcement yesterday, posting a notice on its website indicating that the agreement was signed. With the TIEA in effect, it means that Canadian corporations will be able to set up active business in The Bahamas and, once they meet the stringent qualifying standards and tests, take advantage of the special tax incentive.
According to Deloitte Bahamas managing partner, Raymond Winder, this TIEA creates a competitive advantage for the Bahamas compared to Barbados.
"The biggest thing about this is the fact that for years Barbados has had competitive advantage over The Bahamas because it had a tax treaty with Canada which allowed Canadian companies to be domiciled in Barbados and repatriate profits to Canada and pay a small corporate tax in Barbados," Winder said.
"The TIEA allows The Bahamas the same privileges that the Barbados tax treaty allows, the only difference is the Canadian subsidiary doesn't need to incur any tax at all in The Bahamas to get this treatment. So the TIEA actually puts The Bahamas and other countries that sign TIEAs [with Canada] at a competitive advantage as compared to the current tax treaty Canada has with Barbados."
Getting into some of the legal aspects of the agreement, Higgs & Johnson partner, Dr Earl Cash, honed in on Article 13 of the TIEA. That article spells out the terms of the agreement's entry into force. It indicates that activities that either government is seeking information about must relate to matters considered a criminal offense in its own jurisdiction.
Cash also pointed out that the agreement reaches back to cover a taxable period from January 1, 2004. He said this may have been done to not prejudice Canada's information exchange provisions with The Bahamas against those of the United States, which has tax information exchange provisions with going back to that time.
Initially singed-off since June 17th, Canadian legislators had to enact changes to its excise laws to bring the TIEA into force. "The Excise Act and Excise Tax Act" amendments received royal assent in Canada on June 26th, paving the way for the TIEA coming into force.
At the time, Canadian-based experts Guardian Business spoke to thought early fall was a likely timeframe for the agreement coming into effect.
By NEIL HARTNELL
Tribune Business Editor
The Government has little choice but to continue privatising key revenue-generating agencies such as the Registrar General's Department, a leading accountant warning yesterday that the public sector was failing to attract "the talent that is needed to take the country into the next century".
Raymond Winder, managing partner of Deloitte & Touche (Bahamas), told Tribune Business that despite the Government's commitment to reducing public sector response times and improve efficiencies, it not appear to "be making the headway we need to make to be more competitive".
Suggesting that this reduced the Bahamas' attractiveness ...
Continuing its charge to foster the growth and development of the financial services sector of The Bahamas, the Ministry of Financial Services, led by the Hon. L. Ryan Pinder, M.P...