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.
“This means there is substantial profit at play and this could attract negative attention for companies, at a minimum.”
According to the law360.com article, US Representative Cynthia Axne, a Democrat from Iowa who introduced the legislation in the House; and Senator Chris Van Hollen, a Democrat from Maryland who was the sponsor of the bill in the Senate, said the legislation would “allow Americans to find out the scope of corporate abuse of tax havens and the offshoring of jobs”.
The article explained that during a recent committee meeting, Axne contended that no one thinks companies’ tax avoidance is a good thing. “But for too long, the public and the investors have lacked the information they need to know which companies are taking these risks to squeeze out extra profits,” said Axne.
“My bill would give those investors the information and would do so with minimal burden on companies.”
Edwards pointed out last year that a 2020 report compiled by advocacy group Tax Justice Network (TJN) revealed that as a “tax haven”, The Bahamas is a minimal player.
The TJN found that The Bahamas caused only $21 million in corporate tax losses to other countries annually, compared to Barbados and the Cayman Islands that caused about $6 billion.
According to the law360.com article, US Internal Revenue Service (IRS) officials found in 2017 that US taxpayers held $2 trillion offshore.
Edwards said the fallout from the legislation would affect all international financial centers.
“Let’s not lose sight of the fact that this is legal tax planning at play,” he said. “Also, let’s take into account that not so long ago, Tax Justice Network published a very important paper, which showed that The Bahamas was an almost nonexistent player as it relates to potential taxes diverted from onshore. Countries such as Bermuda, St. Kitts, St. Lucia and Barbados were well ahead of us.
“This may suggest that the impact to The Bahamas is likely to be minimal, if any at all. However, if this act was to be passed and given presidential assent, certainly there would be fallout for all such offshore jurisdictions.”
The law360.com article explained that the US Chamber of Commerce opposes the legislation on the basis that it would harm companies’ competitiveness.
“The current rules surrounding country-by-country reporting have established the right balance between meaningful corporate transparency and protection of commercially sensitive information,” the US Chamber stated to the committee.
“Making country-by-country tax information public would jeopardize the proprietary information of US companies, which should be protected from global competitors.”
The post US legislation could erode business for offshore financial centers appeared first on The Nassau Guardian.
source https://thenassauguardian.com/us-legislation-could-erode-business-for-offshore-financial-centers/
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