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Foreign entities get preferential treatment, says Attorney Alfred Sears

Former Attorney General Alfred Sears is calling on the  government to remove “the ring-fencing” against  gaming houses  in the  Bahamas as the dispute on gaming taxes continues. Mr. Sears who now represents the Web Shop Owners in litigation in the Supreme Court,  yesterday addressed comments made by current Attorney General  Carl Bethel made recently  on the state of  negotiations between the government and  the operators of gaming houses and  a recent policy statement by the Ministry of Finance. 

Mr. Bethel told the Press  that he put a proposal to the gaming houses, which was followed up by a counter proposal that he described as “unacceptable”. 

He further said that he  has rejected what Mr. Sears and “his clients” have to say. 

Mr. Sears  in a statement yesterday said, “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 that I had written an email to him on January 2, 2019 to complain about his intemperate statements reported 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, 2018.” 

He added, “On August 31, 2018, the  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, he said, has since 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”, he said. 

None of which have received any substantive written response from, serious consideration of or engagement by Mr. Bethel on Mr. Sears’ clients’ settlement proposals.  

“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”, he said.

He added, “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. “

He also said that foreign owned financial institutions, such as banks, trust companies, international business companies do not pay corporate taxes or many of the taxes that Bahamian owned financial institutions pay.  

He described this as “unfair ring-fencing and preferential tax treatment of foreign-owned enterprises”. 

He said that relative to the Bahamian-owned enterprises in the same sector,  “this creates a risk of international sanctions under the EU’ anti-Tax Avoidance Directive.” 

He added, “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.”  

In January of last year,  Deputy Prime Minister and Minister of Finance Peter Turnquest announced that the Ministry of Finance will implement a new framework to “make the playing field level for all financial institutions in The Bahamas.” 

The statement  indicated that the focus of this new framework world permit all financial institutions to offer services to local and international clientele and remove any differences in fiscal treatment of financial institutions that cater primarily to the domestic markets and those that cater to international clientele.  

Mr. Sears said, “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.”

He added, “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, during the 2018 budget debate, sought to increase the tax rate on gaming house operators up to 400 per cent. 

This, Mr. Sears said, “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 per cent  up to 50 per cent, plus a 5per cent  Stamp Tax on patrons’ deposits.  However, the rate of tax on casinos will remain the same”, he said.   

He suggested that 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”.  

He said, “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.”, he added.  

This broad-based consultation with gaming industry stakeholders, he said,  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.