The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government is exploring how Bahamas-based companies that will pay the new 15 percent corporate income tax can “accrue” a projected $140m in revenues before the enabling laws are enacted.

Philip Davis KC, in unveiling yesterday’s mid-year Budget statement, laid out the road map for how The Bahamas plans to comply with the G20/OECD global “minimum” tax drive as failing to do so would cost this nation a valuable source of new tax revenues from economic activity conducted within its borders.

Other countries, which serve as host jurisdiction for the parents of Bahamas-based corporate entities, would instead be able to levy the 15 percent rate on profits remitted from this nation if it does not implement what Mr Davis described as the Qualified Domestic Minimum Top-Up Tax (QDMTT).

This will give effect to The Bahamas’ commitment, given under the previous Minnis administration, that it will fully comply with an initiative targeted at imposing a minimum tax rate on multinational entities and their subsidiaries who are part of a corporate group generating 750m euros or more in annual turnover.

With the Government aiming to bring legislation that will give effect to the 15 percent corporate income tax to Parliament after the summer recess, Mr Davis signalled his administration is seeking to ensure it loses none of the forecast net $140m in new revenues that will be generated while avoiding the imposition of “retroactive” taxation.

Confirming that domestic Bahamian companies which fall below the 750m euro threshold, or are not part of multinational groups that qualify, will not be impacted, the Prime Minister said: “This is a tax that affects only multinational enterprises earning more than 750m euros annually.

“We are talking about very, very big companies. The QDMTT is a way to make sure these very big companies pay at least a minimum amount in taxes on their profits in every country where they do business. The implementation of [the OECD’s] Pillar Two in The Bahamas would unlock a new revenue source, with initial estimates expected to exceed more than $140m annually.”

Mr Davis explained that failing to implement the minimum corporate tax would effectively mean The Bahamas handing over the right to collect taxes on economic activity within its jurisdiction to other countries.

“May I add here, Madam Speaker, that if we do not implement this Pillar Two tax on that multinational entity that is doing business in The Bahamas; if we don’t collect it here, they’ll have to pay that same tax in their home jurisdiction, and many of the multinationals doing business here prefer to pay us,” the Prime Minister said.

“We ought not to allow that opportunity to pas because they have to pay it anyhow. Why should they not pay it in the jurisdiction in which they are operating? We are thankful for our collaboration with those in this space...”

It is likely this ability of home country jurisdictions to tax if The Bahamas does not do so that has motivated the Government to explore how local companies that will pay it can “accrue”, or set aside in escrow, the funds that will be generated until Parliament passes the enabling law into statute.

“We are reviewing options that would entail the Pillar Two multinationals accruing those taxes for 2024 in The Bahamas,” the Prime Minister said, acknowledging the difficulties bound up with the Government’s desire to preserve its revenues as taxes are “really not retroactive”.

“We are trying to create a platform, or create an initiative, where they can accrue for 2024 what will come to us even though the law, which will probably be.....” he added, urging the Opposition to “understand it before you speak to it”. Chester Cooper, deputy prime minister, quipped: “Stay on the wall.”

Simon Wilson, the Ministry of Finance’s financial secretary, told Tribune Business that while the Government does not have “a true handle” on how many Bahamas-based companies will be caught in the 15 percent corporate income tax it is likely “a pretty small number”.

The candidates would likely include the major hotels and resorts such as Atlantis (Brookfield), Baha Mar (Chow Tai Fook Enterprises), Sandals and the likes of the RIU and Warwick, both of which are part of international chains. The Canadian-owned banks, Royal Bank of Canada, CIBC and Scotiabank, will also probably qualify along with a number of operators in the international financial services sector.

The likes of the Bahamas Telecommunications Company (BTC), whose parents are Cable & Wireless Communications (CWC) and Liberty Latin America, plus Commonwealth Brewery, which is 75 percent majority-owned by Heineken, as well as the oil majors Rubis and Esso (Sol Petroleum) may also be caught.

Mr Wilson, meanwhile, reassured that companies caught by the 15 percent corporate income tax will not be subject to ‘double taxation’ as they will be exempt from also paying Business Licence fees on their gross turnover. “They obviously won’t pay the Business Licence fee,” he added. “If you fall into the QDMTT you will not pay Business Licence.”

Confirming that the $140m revenues cited by Mr Davis represented net new money for the Government and Public Treasury, Mr Wilson said that designing the accrual mechanism referred to by Mr Davis remains “a work in progress”. However, he signalled that making taxation take effect retroactively was not an insurmountable problem.

“We have been advised that the retroactive implementation of taxes is not that uncommon in the developed word, and that these large companies who will be impacted would also be aware of it, and there are certain benefits to that approach,” Mr Wilson told Tribune Business.

Setting out the Government’s corporate income tax timetable, Mr Davis yesterday said: “We have two inter-related goals – to make sure The Bahamas captures the tax revenues of these very large multinationals doing business here, and to use the fiscal space created by the new revenue to, among other things, provide substantial relief for Bahamian taxpayers.”

No indication was given of what that relief might look like, although Mr Davis said: “The goal is to have draft legislation available by the end of May 2024, at which time we will meet to present the Budget proposals for the upcoming 2024-2025 fiscal year. We hope to speak to that in the Budget presentation.

“We intend to issue the draft for public consultation over the summer months - that is the legislation we hope to have ready by May - and then move to finalise the document for submission to Parliament after the summer recess.”

Mr Davis then moved to reassure Bahamian companies that do not meet the G-20/OECD qualifying threshold that they will not face corporate income tax - at least for now. “We believe that, currently, addressing only Pillar 2 multinational enterprises is the proper approach. We won’t deal with domestic Bahamian companies at this time,” he added.

“Any consideration of a wider business income tax would only happen if it is a more equitable approach for Bahamian businesses, and would only be done after proper consultation, with considerable lead time in order for Bahamian businesses to properly prepare.”