top of page

Dear Editor: What the BEPS is going on? (Part I)

Updated: Sep 5, 2021

The ever-increasing concerns of global poverty, inequality, climate change, natural disasters, and costly sustainable development goals have involuntarily made the global tax system (i.e. how governments cooperate to ensure fairer taxation and wealth distribution) a vital area of legal studies in the 21st century. In 2015/2016, I first came across this topic while interning at Holowesko Pyfrom Fletcher - a financial global advisory firm here in The Bahamas. I was shown the Bill that passed the Organisation for Economic Co-operation and Development’s (OECD) Common Reporting Standard into domestic law, which called on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. Initial concerns were whether the CRS undermines corporate privacy, and whether the technology and data are secure enough against cyber-attacks. These remain relevant concerns as we aim to re-establish the Bahamas' position as a leading International Financial Centre (IFC) in the world and to retool our offshore banking sector as a sector built upon bank "privacy" (i.e. open to legitimate review but not to all and sundry) as opposed to the old corrupt notion of bank "secrecy".

Today we ask ourselves, "What the BEPS is going on?" How are superpower governments shaping the rules of the global tax regime, and does this undermine our country’s sovereignty?


Global societal scrutiny of IFCs alleged participation in aggressive tax avoidance has predated the immense pressures that arose after the 2008 financial crisis, the 2012 EU sovereign debt crisis, and now the 2020 COVID-19 pandemic. These pressures were exacerbated by media reports of the 2016 Panama Papers, 2017 Paradise Papers, and now the 2020 FinCEN Files. The latter has reinforced the OECD’s 15-point action plan, called the Inclusive Framework for Base Erosion and Profit Shifting (BEPS action plan) to regulate the global tax regime, especially concerning insufficient economic substance entities and the global digital economy.


In the past, the G20 and EU have applied soft power tactics like blacklisting developing countries and IFCs. They have also imposed new forms of aggressive unilateral taxation measures such as diverted profits taxes (DPT) and digital services taxes (Facebook, Google taxes etc). These taxes are rippling across the globe to coerce smaller countries into conforming to their competitive rules and standards. In layman terms, once again, we are witnessing that government revenues are down (i.e. nearly 50%) and the current fiscal climate will be exploited by governments to obtain a greater cut of global taxes - especially in a COVID-19 risk management era. However, these new measures arguably go beyond the initial purpose and scope of the BEPS action plan.


Take, for instance, the ‘hair triggering’ conditions of the UK’s DPT under the Financial Act 2015, which is reported to be compatible with the BEPS action plan. The ‘insufficient economic substance’ limb in section 80 is intended to capture transactions alleged diversion of profits from the UK to a low tax jurisdiction involving entities with limited economic substance. It hinges upon the existence of a ‘tax reduction’ arising from an ‘effective tax mismatch outcome’ (i.e. the offshore jurisdictions' effective tax rate is less than 15.2%) and an ‘insufficient economic substance condition’ being met. All of which is very likely to be satisfied in a Bahamian context. These appear to be discriminatory (i.e. xenophobic) and anti-state equality elements of the UK's legislation. It is submitted that the DPT lacks global commercial soundness and undermines corporate legitimacy. More importantly, it helps to kick away the ladder for the growth of IFCs in the developing world and the notion of a cooperative global tax regime that legitimately works for everyone. The Bahamas prides itself on being a self-determined low-tax jurisdiction, but such coercive measures are innately contrary to this ideal and have led to debates on minimum corporate taxes in The Bahamas.

Given that the OECD/G20 is a democratic deficit organization, the BEPS action plan stems from the continuation of an arbitrary grouping of old-school superpowers. If the developing world was not involved in the process before the OECD’s agenda was set, it may be assumed that compliance may not be in their best interest or on the table at all. Nevertheless, this did not stop The Bahamas' appointment, as the first-ever "No or Nominal Tax" jurisdiction, on the BEPS action plan's Steering Group. This development raises concerns as to whether this "seat at the table" gives a fallacy of the framework's alleged legitimacy, and whether we will have little or any significant impact in shaping the policies for our betterment. It is fair to assume that our seat will be displayed as a mere 'token seat' with limited room to carve out 'culturally appropriate' measures in alignment with our interests. Think of it like this, you have been invited to a party. Upon arrival, you notice most of, if not all, the food is gone. Now everyone is smoking at the table, but you are a non-smoker and none of your other non-smoker friends were invited. In this case the OECD is smoking, the Bahamas is the token non-smoker friend, and the other no or nominal tax countries were not invited. The legitimacy, inclusivity, and fairness of the framework remain to be seen.


The fortunate outcome has been what financial service professionals call ‘compliance business’. This includes the implementation of G20 and EU-related taxation laws into domestic laws and establishing a compliance industry. However, our government should always keep in mind the ease of doing business in The Bahamas, aiming to be a self-determined and competitive IFC, by enquiring about the compliance mandate imposed on them. The uncertainty of the current global legal taxation framework creates an undue hardship on practitioners and clients. The unfortunate outcome has been businesses restructuring or liquidating, and their previous operations moving to lower tax jurisdictions that have not yet implemented aspects of the BEPS action plan, thereby perpetuating the zero-sum game. If The Bahamas does implement the BEPS action plan, the question is how much will we really lose?

Written 14 November 2020 and published in the Nassau Guardian on 28 July 2021: https://thenassauguardian.com/what-the-beps-is-going-on/


by Mr Boykin G Smith

B.A. (Hons) Politics, LL.B (Juris Doctor)

BPTC & LL.M Candidate

Candidate for Garden Hills


44 views0 comments
bottom of page