Bahamas: Double Tax Treaties
Other International Agreements
Mutual Assistance Treaties: There are mutual assistance treaties with the US, Canada and the UK which include exchange of information provisions; but fiscal information is excluded. Disclosure is limited to criminal matters, and tax evasion is not a crime in the Bahamas. The Bahamian statute Reciprocal Enforcement of Judgements Act 1924 allows Commonwealth judgements to be enforced in the Bahamas, but revenue matters are excluded.
In June 2000 the Bahamas was placed on the FATF blacklist of 15 jurisdictions having inadequate defences against money-laundering, and the US State Dept issued an 'Advisory' against the jurisdiction. The Bahamas also figured on the OECD's list of 35 offshore jurisdictions offering 'unfair' tax competition. After the government enacted a swathe of legislation to improve its regulatory regime, the Bahamas was removed from both lists.
In August 2000 an amendment was made to the Evidence (Proceedings In Other Jurisdictions) Act. This now allows international investigators to obtain details of local or foreign bank account holders in The Bahamas under a considerably wider range of circumstances than before.
For bankers, and especially their lawyers, one of the most vexed aspects of the '2000' legislation is the extent to which it compromises banking secrecy, and the duty of confidentiality which lawyers and other professionals owe to their clients. Prominent jurists even said that the legislation conflicted with the Constitution, and welcomed a Court of Appeal ruling in October, 2002, setting aside a judgement of the Supreme Court under which the new legislation was protected from constitutional review.
The original application had been made by local lawyers complaining that the new laws inappropriately designated law firms as financial services institutions, for the purposes of regulation by the Financial Intelligence Unit (FIU). Maurice O. Glinton and Leandra Esfakis, joined by the Bahamas Bar Association, had claimed that to the extent that the legislation subjected "financial services providers" (including lawyers) to routine inspection of their offices and client lists, this placed the lawyer in direct conflict with his or her sworn duty to protect the client’s confidentiality.
The Supreme Court had sympathised with the litigants, but felt bound by a previous case; the Court of Appeal disagreed, and insisted that the lawyers' application should be heard on its merits. In fact, Canadian and British precedents had already confirmed the lawyers' position, and the Court of Appeal had little choice but to agree.
Well-known local jurist, Dr Gilbert N M O Morris said: "It does not mean that there will be no money-laundering laws in these jurisdictions. What it does mean is that we shall have more intelligent laws, more amenable to our constitutions. It will also mean that our BAR Associations, Accounting Institutes, our Insurance Agencies and professional bodies will have to get into the game; putting resources into getting good research and remaining well-informed and educated on the cutting edge of these issues."
In March, 2004, the FATF said it was pleased by the Bahamas' progress on legal assistance treaties. Attorney General Alfred Sears said: "The executive director of the CFATF (Caribbean Financial Action Task Force) informed me that the Financial Action Task Force members are generally pleased by the progress of The Bahamas in dealing with judicial requests."
Also in early 2004, a Memorandum of Understanding (MOU) was signed by director of AUSTRAC (Australia's anti-money laundering regulator and specialist financial intelligence unit) Mr Neil Jensen, and the director of the Financial Intelligence Unit of the Bahamas.
In October, 2005, it was announced that the Bahamas had been removed from the Financial Action Task Force’s monitoring list of countries with weak anti-money laundering or terrorist financing laws.
Attorney General, Alfred Sears said that the process of complying with FATF demands had been lengthy and costly, but had led to mainly positive changes for the islands' financial industry.
Minister Sears said the years of working to remove the Bahamas from the FATF’s list has led to the build up of a remarkable level of expertise, and that the Bahamas' Director of Public Prosecutions has been recognized by the FATF as “a specialist”, assisting with the evaluation of other countries.
Speaking from New York City, Dr Gilbert NMO Morris, who has been a long-time commentator on the Bahamas' financial regulatory systems, suggested that there was nothing significant in the FATF’s decision to cease its monitoring of the Bahamas. He said: “I would have found it more interesting if The Bahamas - given its long history in this industry – had ceased its monitoring of the FATF”.
In March 2009, The Bahamas and Canada signed an Asset-Sharing Agreement, formalising an arrangement to confiscate the proceeds of drug trafficking, money laundering and other criminal activities.
Minister of Foreign Affairs Brent Symonette and Denis Kingsley, High Commissioner for Canada to the Bahamas signed the Agreement for the respective governments during a ceremony at the Ministry of Foreign Affairs in the Goodman’s Bay Corporate Centre on March 12.
“This agreement with Canada is symbolic of the excellent relationship that exists between our two countries and we look forward to continued collaboration in these and other matters,” Symonette said.
In March 1990, both governments entered into the Mutual Legal Assistance in Criminal Matters Treaty. This treaty facilitates the gathering of evidence and intelligence in the investigation and prosecution of criminal offences. It also enhances the capabilities in the confiscation of the proceeds of crime.
“Mutual legal assistance treaties are concluded between two countries for the purpose of gathering and exchanging information in an effort to enforce criminal laws and confiscate the ill-gotten gains of criminal activity,” Symonette said.
“Notwithstanding the excellent cooperation that already exists between the Bahamas and Canada with regard to sharing such assets even in the absence of a formal agreement, in 2001 our governments commenced negotiations on an Asset Sharing Agreement to formalise the arrangement,” he added.
Qualified Jurisdiction Status
In 2002 the Bahamas was granted a six year term for its Qualified Jurisdiction (QJ) status by the United States.
The decision to grant the six year term was made on the basis of an IRS determination that 'Know Your Customer' rules in the Bahamas are implemented to an acceptable standard for the purposes of operating a Qualified Intermediary regime, and will allow financial institutions based in the jurisdiction to benefit from reduced reporting and documentation requirements.
Speaking following the announcement, Minister of State for Finance, James Smith welcomed the news, explaining that the extended term of the status will increase the feeling of stability and certainty amongst financial service providers.
The Bahamas/US Tax Information Exchange Agreement
In January, 2002, the Bahamas signed an information exchange agreement with the United States in order to allow both countries to pursue tax evaders and money launderers more effectively.
The agreement, which followed the establishment of similar arrangements between the US and Antigua, Barbuda, and the Cayman Islands, marked another step in the Bush administration's campaign to clamp down on terrorist financing. It allows the US Internal Revenue Service to pierce stringent banking secrecy rules in the Bahamas in certain circumstances.
However, in a retrospective of 2001 published in late December, CEO and Executive Director of the Bahamas Financial Services Board, Wendy Warren, warned that the co-operation demonstrated by the Caribbean jurisdiction in the international fight against money laundering has not changed the country's fundamental perspective on financial privacy.
"The Bahamas will continue to co-operate with all who seek to fight money laundering, fraud, international terrorism and other serious crimes. At the same time, this does not diminish the fundamental fact that The Bahamas is wedded to the belief that law-abiding persons and entities have a right to privacy and confidentiality with respect to the conduct of their affairs," she stated.
Part of the tax and information exchange agreement (TIEA) between the United States and the Bahamas came into effect on 1st January, 2004, giving the latter the status of a permanent Qualified Jurisdiction.
The US gave The Bahamas provisional QJ status in 2000, but made an extension to the full six years conditional on the Bahamas signing a TIEA with the US before the provisional period expired. This led to extensive negotiations during 2001, which ended in the TIEA being signed in January 2002.
The TIEA is not, however, retroactive and only applied on criminal matters from 1st January, 2004. Civil tax matters are covered by the TIEA from 1st January, 2006.
According to the US Treasury, once the Agreement became effective with respect to requests for information made in connection with civil tax matters, it was consistent with the standards for an exchange of information agreement described in the Internal Revenue Code.
The Code generally allows US taxpayers to claim a tax deduction for expenses associated with a convention held in certain beneficiary countries with tax information exchange agreements with the United States to the same extent as a convention held in the United States.
Thus, beginning from 1st January, 2006, The Bahamas has been considered part of the “North American area” for purposes of determining whether US taxpayers may deduct expenses incurred in attending conventions, business meetings and seminars in The Bahamas.
In September, 2004, the Bahamas government announced a decision not to enter into any more tax information exchange agreements in the near future. Said Minister of State for Finance James Smith: “Until we have a level playing field with regard to tax information exchange we are not entering into any treaties with other OECD members."
The TIEA entered into with the United States has sparked worry in the financial community that the Bahamas has left itself at the mercy of the IRS.