Sunday, January 6, 2019
Alfred M. Sears, QC
The Attorney General of The Bahamas, the Honourable Carl Bethel, is reported in The Tribune of Friday, December 4, 2019 as having stated to the Business Editor of The Tribune that “’I put a proposal to them. They were supposed to come back to me,’ he revealed of the Government and industry’s latest discussions. ‘One of them did with a counter-proposal that was unacceptable. I’ve rejected what Mr. Sears and his clients have to say’.”
As counsel for Playtech Systems Limited, I find it curious that the Attorney General would choose to communicate with me through the media. It is even more curious that the Attorney General failed to disclose to Business Editor of The Tribune that I had written an email to him on January 2, 2019 to complain about his intemperate statements reported in The Tribune of January 2, 2019 under the caption ”Bethel ready to take Web Shops to Court”, remind him that we are currently in good faith settlement negotiation, that our clients had refrained from speaking to the Government through the media and that we were waiting for his substantive reply to our clients’ counter proposal of December 24, 2019.
On August 31, 2018, the Honourable Attorney General gave an undertaking in the Supreme Court to Madam Justice the Honourable Indra Charles to stay the implementation of the Stamp (Amendment) Act 2018 and Regulation 57 (1) of the Gaming House Operator (Amendment) Regulation 2018 until after the determination of Playtech’s application for leave to apply for Judicial Review and to engage our client in good faith negotiations. This undertaking of the Attorney General was reduced to an Order filed in the Supreme Court on September 24, 2018.
Playtech has sought to engage the Attorney General in good faith settlement negotiations. We have sent a number of written settlement proposals to the Attorney General, supported by opinions of leading international gaming experts, on December 24, 2018, November 13, 2018, October 26, 2018. We have not received any substantive written response from, serious consideration of or engagement by the Attorney General on our clients’ settlement proposals.
Does the Honourable Attorney General not appreciate the implications of his conduct in light of the undertaking that he gave to the Supreme Court?
There are grave interests at stake in this matter, with profound implications for the public revenue, the sustainability of Bahamian-owned gaming enterprises and the security of over 3,000 full-time jobs of Bahamian citizens which require our careful and fair conduct.
Concurrently, as the Minister of Finance claims that he and his team are working diligently to “demonstrate [a] commitment to global standards” in the Financial Services Sector, the Attorney-General is boasting about going to “war” against Bahamian-owned gaming house licensees to protect the new, discriminatory gaming tax regime and put The Bahamas at further risk of being sanctioned for affording preferential treatment to foreign enterprises in the gaming sector.
The European Union (EU), Organization for Economic Co-operation and Development (OECD), Financial Action Task Force (FATF), and most recently the Netherlands, have all listed The Bahamas as a non-cooperative jurisdiction in their fight against tax avoidance.
Jurisdictions that have no corporate tax or have a corporate tax rate that is lower than 7 percent are considered low-tax jurisdiction, subject to negative listing by the European Union and its members under the EU’s Anti-Tax Avoidance Directive against countries that, according to the EU, “consistently refuse to play fair on tax matters”.
Among the practices that have put the Bahamian economy at risk for continued sanctions, foreign owned financial institutions, such as banks, trust companies, international business companies in The Bahamas do not pay any corporate taxes or many of the taxes that Bahamian owned financial institutions pay. This unfair ring-fencing and preferential tax treatment of foreign-owned enterprises relative to the Bahamian-owned enterprises in the same sector create a risk of international sanctions under the EU’ anti-Tax Avoidance Directive.
As part of measures to have The Bahamas removed from the negative list of the European Union, The Government is currently drafting policies and legislation to eliminate preferential treatment of entities within the banking, insurance and trust sectors.
On January 3rd, 2018 the Honourable K. Peter Turnquest, Deputy Prime Minister and Minister of Finance, announced that after broad consultation with both local and international stakeholders the Ministry of Finance will implement a new framework to “make the playing field level for all financial institutions in The Bahamas.”
According to the statement by the Minister of Finance, the focus of this new framework is 1) the permitting all financial institutions to offer services to local and international clientele and 2) the removal of any differences in fiscal treatment of financial institutions that cater primarily to the domestic markets and those that cater to international clientele.
While certain financial institutions, such as banks, insurance, trust and international business companies, are afforded the opportunity to engage in broad consultation with the Government, guided by global standards, mutual respect and the principle of a leveled playing field, Bahamian gaming house operators have not been given the same consideration.
Gaming House Operators and Casinos are also financial institutions, pursuant to the Financial Transactions Reporting (Gaming) Regulations, 2014 and the Financial Transaction Reporting Act 2014, with the same statutory compliance and KYC obligations as banks and other financial institutions.
The Government, through its current proposals to increase the tax rate on gaming house operators up to 400%, will deepen preferential treatment of and the ring-fencing around casinos owned by foreign companies some of whose shareholders are citizens in OECD member countries and will likely increase channelization of patrons into the unregulated gaming market; thus, increasing the risk of international sanctions against The Bahamas.
Recklessly, the Government proposes to increase the tax rate on gaming house operators by a sliding scale from 20% up to 50%, plus a 5% Stamp Tax on patrons’ deposits. However, the rate of tax on casinos will remain the same.
This preferential low tax treatment of foreign-owned casinos relative to the excessively high tax treatment of Bahamian-owned gaming house operators is an unfair, inequitable and indefensible tax treatment of entities in the same sector.
This disparate tax treatment is a classic case of ring-fencing, defined by the European Union’s Anti-Tax Avoidance Directive as low-tax jurisdiction for foreign operators in the same sector with a statutory tax rate of 7% or less or jurisdictions that have been listed by the EU as a non-cooperative jurisdiction.
It is upon this very basis that The Bahamas was listed as a non-cooperative jurisdiction by the European Union and, now, by The Netherlands as of January 1, 2019.
As the other 28 members of the European domesticate the EU’s Anti-Tax Avoidance Directive, The Bahamas will be negatively listed possibly by each of the members of the EU, as has already been done by The Netherlands, in addition to the European Union itself.
Therefore, the Minister of Finance’s effort to eliminate ring-fencing and level the playing field in the Financial Services Sector should apply equally to the ring-fencing that exists in the gaming sector, which represents a clear and present danger for The Bahamas.
Why should we wait for another negative listing by the EU, its member countries or other multi-lateral bodies before we address this discriminatory, unfair, inequitable and indefensible disparate tax treatment of entities within the same gaming sector?
Rather than negotiating in good faith with gaming house operators, consistent with the undertaking that he gave to the Supreme Court, the Attorney-General seems committed to deepening this unfair, inequitable and preferential tax treatment of entities in the same sector.
By aggressively pursuing the exorbitant “sliding scale” taxation structure on the domestic gaming industry while widening the gap between domestic and foreign gaming operators, the Attorney General is only compounding the ring-fencing in the gaming sector that the Minister of Finance is seeking to eliminate between foreign-owned financial institutions, such as banks, trust companies and IBCs. This contradiction in Government’s tax policy will expose The Bahamas to continuing punitive sanctions as a low-tax jurisdiction and litigation by Bahamian gaming house operators.
Similar to the consultation undertaken by the Ministry of Finance with the banking and trust company representatives, including AIBT, BFSB and the leading Accounting Firms, to eliminate any preferential treatment in that sub-sector, we call on the Government to undertake the same broad-based consultation in the gaming sector, inclusive of gaming house operators, casino operators and the Gaming Board.
This broad-based consultation with gaming industry stakeholders is the only way to remove the ring-fencing and preferential treatment of entities within the same sector, ensure fairness and equity in the gaming sector in The Bahamas, reduce channelization into the unregulated gaming market and protect The Bahamas from further punitive sanctions based on ring-fencing and preferential tax treatment of foreign -owned casino operators.