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US legislation could erode business for offshore financial centers

Mon, May 17th 2021, 08:00 AM
Business Nassau Guardian Stories

The United States' House Financial Services Committee is hoping to have its Disclosure of Tax Havens and Offshoring Act - that will require multinational corporations to disclose "country-by-country financial reporting” – ratified soon, hoping it would reveal “corporate abuse of tax havens”. If the act becomes law, it could lead to the further erosion of the kind of business international financial centers like The Bahamas provide. 

The United States’ House Financial Services Committee is hoping to have its Disclosure of Tax Havens and Offshoring Act – that will require multinational corporations to disclose “country-by-country financial reporting” – ratified soon, hoping it would reveal “corporate abuse of tax havens”. If the act becomes law, it could lead to the further erosion of the kind of business international financial centers like The Bahamas provide. 
The committee voted 28-23 to send the legislation to Congress, according to an article published on legal news website law360.com.
While The Bahamas has been pegged as a tax haven in the past and blacklisted as such, Attorney General Carl Bethel told Guardian Business that the country’s adoption of many multilateral frameworks and agreements already move multinational corporations or their subsidiaries operating in The Bahamas to adhere to certain reporting requirements.
“At the end of the day, the issue of tax shifting is covered on a multilateral basis by the OECD/EU’s (Organization for Economic Cooperation and Development/European Union) BEPS (Base Erosion and Profit Shifting) initiative, to which The Bahamas has already acceded to, hence the CESRA (Commercial Entities Substance Requirements Act),” said Bethel.
He added that The Bahamas has already guarded itself against whatever fallout could come from the passage of the act in the US.
However, Hubert Edwards, managing consultant of corporate governance and risk management consultancy Next Level Solutions, told this paper that should the legislation pass, many of the advantages multinational corporations enjoy from utilizing international financial centers like The Bahamas, could simply “evaporate”.
Edwards said companies could choose to move away from The Bahamas to avoid the challenges that could come from the legislation and the possible reputation damage or embarrassment that could come from having to be pegged as a tax avoider.
“This is a potential spot of bother for offshore jurisdictions,” said Edwards. “When you consider that pre-2017, when changes were made to US legislation, which facilitate current actions, Bermuda, as an example, was responsible for $35 billion of this kind of off-shored profits. This ballooned to $105 billion by 2018, right after the changes.

The United States’ House Financial Services Committee is hoping to have its Disclosure of Tax Havens and Offshoring Act – that will require multinational corporations to disclose “country-by-country financial reporting” – ratified soon, hoping it would reveal “corporate abuse of tax havens”. If the act becomes law, it could lead to the further erosion of the kind of business international financial centers like The Bahamas provide. 

The committee voted 28-23 to send the legislation to Congress, according to an article published on legal news website law360.com.

While The Bahamas has been pegged as a tax haven in the past and blacklisted as such, Attorney General Carl Bethel told Guardian Business that the country’s adoption of many multilateral frameworks and agreements already move multinational corporations or their subsidiaries operating in The Bahamas to adhere to certain reporting requirements.

“At the end of the day, the issue of tax shifting is covered on a multilateral basis by the OECD/EU’s (Organization for Economic Cooperation and Development/European Union) BEPS (Base Erosion and Profit Shifting) initiative, to which The Bahamas has already acceded to, hence the CESRA (Commercial Entities Substance Requirements Act),” said Bethel.

He added that The Bahamas has already guarded itself against whatever fallout could come from the passage of the act in the US.

However, Hubert Edwards, managing consultant of corporate governance and risk management consultancy Next Level Solutions, told this paper that should the legislation pass, many of the advantages multinational corporations enjoy from utilizing international financial centers like The Bahamas, could simply “evaporate”.

Edwards said companies could choose to move away from The Bahamas to avoid the challenges that could come from the legislation and the possible reputation damage or embarrassment that could come from having to be pegged as a tax avoider.

“This is a potential spot of bother for offshore jurisdictions,” said Edwards. “When you consider that pre-2017, when changes were made to US legislation, which facilitate current actions, Bermuda, as an example, was responsible for $35 billion of this kind of off-shored profits. This ballooned to $105 billion by 2018, right after the changes.

 

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