Caribbean & Central America - March 2024

On 20 February the Council of the European Union (EU) removed The Bahamas, Belize, and the Turks & Caicos Islands (TCI) from its list of non-cooperative jurisdictions for tax purposes. The decision is seen as good news for all three jurisdictions; however, four others in the Caribbean (Anguilla, Antigua & Barbuda, Trinidad & Tobago, and the US Virgin Islands) are still considered by the EU to be “non-cooperative”.

The EU list of non-cooperative jurisdictions for tax purposes was first established in December 2017 as part of an effort to “promote good tax governance worldwide”. Twice a year, usually in February and October, jurisdictions are assessed against criteria such as transparency, fair taxation, and adherence to international standards designed to prevent tax base erosion and profit-shifting. They are also assessed in the light of recommendations from the Organisation for Economic Co-operation and Development (OECD)’s Forum on Harmful Tax Practices (FHTP).

In the case of The Bahamas and TCI, poor enforcement of “economic substance requirements” had been an issue. This is the criteria that jurisdictions should not allow the setting up of shell companies – offshore structures aimed at attracting profits and holding assets – that do not reflect some level of real activity in their territory. The two countries appear to have benefited from an FHTP decision to change this from a ‘hard’ to a ‘soft’ recommendation for jurisdictions that have no, or purely nominal, corporate income tax. This was enough to take them off the “non-cooperative” list.

Belize on the other hand had been placed on the list in October 2023 after a negative OECD assessment regarding its commitment to exchanging information upon request. As a result of changes in applicable rules, however, the jurisdiction has been taken back off the non-cooperative list awaiting a supplementary review, to be undertaken in the near future.

In fact, the EU maintains two lists. Annex I is the full list of non-cooperative jurisdictions, which now number 12 worldwide, of which four are in the Caribbean. But it also publishes what is called a “state of play” list (Annex II) of “countries which cooperate with the EU and have pending commitments”. The latest Annex II praises Aruba for fulfilling all its pending commitments on the automatic exchange of financial account information. It also praises Dominica for improving its exchange of information on request.

As for the four non-cooperative Caribbean jurisdictions, an EU statement invited them “to improve their legal framework in order to resolve the identified issues.” Without giving further details, it said that the group included countries that had not engaged in a constructive dialogue and those that had failed to deliver on their reform commitments.

IMF praise for The Bahamas

The executive board of the International Monetary Fund (IMF) announced on 2 February that it had concluded its Article IV consultation with The Bahamas, noting that “the economy is in the midst of a solid expansion, with signs of continuing strength across sectors”. The IMF estimated GDP growth of 4.3% in 2023, and also highlighted falling unemployment and inflation. However, it advised the Bahamian government to increase its fiscal buffer to mitigate against “an economic slowdown in tourism source markets and the potential for costly natural disasters”.