Canada TIEA may contain 'double tax' reciprocity

By added on 16/06/2010

THE Bahamas could sign its 22nd Tax Information Exchange Agreement (TIEA) with Canada on Thursday, Tribune Business has been told, with financial services industry executives hoping the deal will stick to initial drafts that placed this nation on an equal footing with Barbados in terms of 'double tax' benefits.

Zhivargo Laing, minister of state for finance, confirmed to Tribune Business that the Government was "finalising" discussions with Canada over the TIEA, although he declined to specify Thursday as the signing date or talk about the agreement's likely contents.

"I know we are finalising talks with Canada, but I cannot confirm Thursday. I cannot," Mr Laing said, in response to Tribune Business's inquiries. "I'm not confirming anything in respect of those discussions at this point."

Yet an email sent out to Bahamas Financial Services Board (BFSB) members, which was read out to Tribune Business, states: "Please be advised that a TIEA between Canada and the Bahamas is expected to be signed on the Thursday, June 17."

Several financial services industry services told Tribune Business that if the final TIEA agreement stuck to initial drafts seen last year, then the deal with Canada was one of the best for this country in terms of providing reciprocal economic/trade benefits.

These sources told this newspaper that the proposed Canadian TIEA they had seen offered to place the Bahamas on an equal footing with Barbados, effectively giving it a 'double taxation' treaty with Ottawa without entering a formalised arrangement.

The proposed TIEA, Tribune Business understands, would have allowed the subsidiaries of Canadian-owned companies that are based in the Bahamas to repatriate their profits home directly and still avoid tax in Canada.

Currently, major Canadian-owned banks, especially FirstCaribbean, have their regional headquarters domiciled in Barbados, largely because of that nation's 'double tax' treaty with their homeland. The treaty ensures their profits are only taxed once - at the lower Barbadian rate - rather than at the higher Canadian thresholds, and has acted as a major draw for Canadian companies seeking to do business in the region to establish their bases there.

"Canada had proffered an agreement last year that was more attractive than anyone else's," one Bahamian financial industry source told Tribune Business yesterday, "so I hope they go with that.

"If the agreement is signed as it was offered, as it was on the table, in 2009, we are treated as having double taxation [rights] even though we do not have an agreement, so we will be in the same position as Barbados. We'd get the same sort of treatment when the Canadian-owned banks repatriate their profits back home."

Another highly-placed Bahamian financial services executive confirmed to Tribune Business: "I understand that the TIEA with Canada was suppose to be one of the better ones.

"We have a double taxation treaty, in effect, but also there was going to be an exchange of other things - know how, and opportunities for Bahamian businesses to do business with Canadian businesses. Certainly, there was a market for Bahamian goods and services."

Yet the executive added: "I understand it would be a good one, but until I see the final signed document I just don't know. It's just that in the art of negotiations, some things fall away and others don't.

"This one has been talked about for quite a while, and because of the linkages with Canada, universities and other things, everyone is waiting to see this one."

The Canada TIEA is also likely to have linkages with current trade talks taking place between Ottawa on the one hand, and the Bahamas and CARICOM on the other, over a replacement trade agreement for CARIBCAN that would be WTO-compliant.

The Bahamas has been a key destination for Canadian foreign direct investment (FDI), especially in sectors such as banking, tourism and construction, while a Canadian firm, Vancouver Airport Services (YVRAS), is managing the transformation of Lynden Pindling International Airport (LPIA).

On the reverse, Canada remains an important market for Bahamian exports such as crawfish, while many Bahamians receive their tertiary education at Canadian colleges and universities.