Marshall J. Langer suggests how it can be done

By C. E. HUGGINS, Business Editor, huggins@nasguard.com

A week or two ago much was made of the fact that the Organisation for Economic Cooperation and Develop-ment (OECD) through its Financial Action Task Force (FATF) had telephoned to inform the relevant bodies that The Bahamas was no longer of significance to them as far as being monitored by the (FATF).

The word had gone forth that The Bahamas was no longer being monitored, for now.

No word was mentioned, however, about leveling the playing field, a position that the Minister of State for Finance Senator James Smith had said had to be a starting position for negotiations between The Bahamas and the high-tax regimes that operate through OECD about any changes or agreements that would be made between The Bahamas and other countries. The reality is however, that the field will never be level and it is in recognition of this fact that Marshall J. Langer in a recent presentation at a Bahamas Financial Services Board (BFSB) - sponsored seminar made some suggestions on how the jurisdiction could retain its competitive edge without losing face. According to Mr. Langer, a noted specialist on taxation regimes, it is possible for countries like The Bahamas to propose win-win arrangements between what he terms "high-tax countries and no-tax countries."

"The current hostility of the major OECD countries towards smaller international financial centres can be eliminated," he stated. "The current lose-lose situation can be transferred into a win-win scenario."

Mr. Langer is proposing that countries like The Bahamas where financial centres are under attack from the OECD, should look at what he calls "limited revenue-sharing tax arrangements".

These arrangements would apply only to "bona fide resident individuals but not to companies or other entities". And Mr. Langer's proposal applies only to individuals because much of the financial

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services is driven by high net worth individuals (HNWI) who are particularly keen about keeping as much of their money as legally possible for their use as oppose to having it taken away by onerous tax schemes.

Further, The Bahamas financial services sector is seeking to establish a competitive presence that will make it attractive to HNWI. Mr. Langer pointed out that it was critical that the stakeholders in both the public and private sectors take the initiative and approach countries within the OECD countries like Austria and Iceland, and establish arrangements based on his suggested win-win model. The model, which he calls the Limited Revenue-Sharing Tax Arrangement (LRSTA) has certain characteristics, not least of which is "mutual trust and confidence" between the two countries, which would eventually evolve into more comprehensive tax treaties or agreements.

An obvious requirement would be an arrangement between a high-tax country such as any of the 30-member OECD and "a country (or territory) with no income tax or one that does not have tax foreign-source income". Mr. Langer notes that many of the countries "targeted by the OECD harmful tax practices initiative" meet these criteria.

The arrangement differs from the "typical [OECD] comprehensive income tax treaty" in many significant ways.

Mr. Langer notes that it would be "less comprehensive than a typical tax treaty" but at the same time provide more benefits to the contracting parties than the "usual tax exchange agreement (TIEA) one of which The Bahamas has with the USA. The importance of countries like The Bahamas seizing the initiative and pushing their agenda become readily apparent upon viewing the more critical LRSTA components.

Mr. Langer is in fact calling for the high-tax countries of the OECD to move away from certain cherished positions, namely: the typical OECD income tax model which was designed for use between two developed countries that tax worldwide income. As Prime Minister of Barbados Owen Arthur emphatically pointed out to the OECD, a sovereign state's tax regime is not open to the heavy-handed OCED approach.

And as Mr. Langer rightly points out, no-tax countries have neither the need nor the ability to impose a worldwide tax on income. Nor should the high-tax country expect to impose "excessive or confiscatory withholding taxes on passive income paid to bona fide residents in a cooperative country just because that country does not have the same tax system as the high-tax country".

Interestingly enough, one of Mr. Langer's requirements puts the elusive level playing field finally within reach.

On the subject of withholding taxes, Mr. Langer states that both parties to the agreement should accept from the outset that it would be appropriate "to limit reductions in withholding taxes to bona fide individual residents of the no-tax country who are not also residents of the high-tax country and to share the revenues derived from such withholding in a manner similar to that now provided in the European Savings Directive".

And once the no-tax country had committed itself to preventing its facilities from being used by the high-tax country resident who intends to cheat on taxes, they could then agree on how they could prevent such abuses, which would include the exchange of information for criminal and civil cases but not "fishing expeditions". And unlike current arrangements, the country requesting the information would foot the bill.

During his presentation, Mr. Langer made the obvious point that it would always be to the advantage of the smaller country to take the initiative and make suggestions on how everyone could co-exist. "You don't want to wait for France and Germany to come telling you what they want," he said, describing the current status quo. "You have to go and negotiate agreements with OECD countries like Austria and Iceland."

No-tax countries like The Bahamas often themselves waiting to be told what they can and cannot do or, as happened recently, waiting for a phone call to be told they are no longer being monitored.

He added that the company had built an enviable reputation both for the services it provides as well as its work in the community.

"We have a reputation for innovative health cover, customer service and we provide access to the world's largest health care network," said Mr. Bastian of the community-minded company.

Atlantic Medical is a part of Colonial Group International and has branches throughout the Caribbean including Bermuda, Cayman Islands, and the British Virgin Islands. The company which dominates group medical insurance in The Bahamas also has a pension's arm called Atlantic Pensions.