The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A well-known QC yesterday described the uncertainty created by the Government’s constant tinkering with the Hawksbill Creek Agreement as “a cancer to Freeport’s business environment and population”.

Fred Smith, the Callenders & Co attorney and partner, spoke out after a Supreme Court hearing laid out the process to bring the Freeport private sector’s long-awaited challenge to the 2013-2014 Budget’s new and increased taxes to trial.

He argued that it “makes no sense” for the Prime Minister to continue promoting Freeport as an attractive foreign direct investment (FDI) when successive administrations had attempted to chip away at, and erode, the Hawksbill Creek Agreement.

And he argued that the taxes introduced in the 2013-2014 Budget continued to threaten businesses “operating on the cusp of existence”, his clients having yesterday informed him that the taxes subject to their challenge were still being levied.

Mr Smith, who is representing the 14 business plaintiffs in the tax battle, and Government attorneys appeared yesterday before Justice Petra Hanna-Weekes, with the Supreme Court effectively implementing a ‘compromise’ arrangement between the two sides to ensure a speedy trial.

In return for the 14 companies holding off on demands that the Government and Grand Bahama Port Authority (GBPA) answer an “interrogation” over the tax regime changes, the latter parties have agreed to provide all necessary discovery documents within 21 days (see story on Page 3B).

The action, which was filed in early May 2014, is challenging the 1 per cent Customs processing fee and Environmental Levy that were imposed as part of the tax reform package introduced in the 2013-2014 Budget.

The 14 companies, all GBPA licensees, are alleging that these two taxes violate their legal rights under the Hawksbill Creek Agreement to import goods into Freeport without paying any duties or taxes.

And, using the same grounds, they are also arguing that simultaneous amendments to the Stamp Act violate GBPA licensees’ rights to transfer money, including profits and dividends, outside the Bahamas without being hit with taxes.

Subsequent pronouncements from both the Government and GBPA suggested that the 1 per cent Customs processing fee, which was capped at a maximum $500 per shipment, had been ‘rolled back’ to a flat $10 sum.

However, Mr Smith’s clients argued in September 9, 2015, submissions to the Supreme Court that it “remains unclear” whether the roll-back had been “approved and/or implemented by Parliament”.

They added that the “content and outcome” of discussions between the Government and GBPA on the issue “were and remain unclear”, especially whether the roll-back applied to all 3,500 of the latter’s licensees or just the major industrial companies.

Confirming to Tribune Business how the case will be conducted moving forward, Mr Smith said: “We agreed to put the interrogatories into abeyance on the condition that the Government defendants and the Port Authority provide us with discovery within 21 days.”

He explained that this required both to file their affidavits, and state their positions, on the issue, by October 5. And all documents referenced by the Government and GBPA in their responses will be supplied, too.

Justice Hanna-Weekes also agreed to separate the case into two. She will first deal with the central issues raised by the 14 companies. If she finds in their favour, she will then rule on liability/damages, and how much the companies should be refunded in terms of the taxes they have already paid.

“Our clients confirmed this morning that the processing fee and Environmental Levy are still being charged,” Mr Smith told Tribune Business.

“Freeport is a very artificial economy, and the Hawksbill Creek Agreement’s construct is very, very important to the continued existence of businesses in Freeport.”

Despite the tax exemptions granted to Freeport-based companies by the Agreement, Mr Smith argued that they “pay as much, if not more” in taxes and fees than businesses elsewhere in the Bahamas.

He explained that the Freeport private sector made their payments to the GBPA, rather than the Government, and under different names. ‘Licence fees’ were the equivalent of the Government’s Business Licence, while ‘service charges’ were akin to real property tax.

“Although people elsewhere in the Bahamas feel we have a free tax ride, we pay them to another entity,” Mr Smith told Tribune Business.

“Given the fragility of the economy, the imposition of this other tax burden [in 2013-2014] for businesses operating on the cusp of existence, could put them out of business.

“The uncertainty created by the artificial imposition of certain taxes, and ignoring the provisions of the Hawksbill Creek Agreement, also makes it impossible for the more substantial licensees - the economic engine of Freeport - to plan and budget for their future.”

Mr Christie especially focused on promoting Grand Bahama during last week’s trip to a Caribbean investment conference in London, but Mr Smith argued: “There’s no sense for the Prime Minister to continue promoting foreign direct investment in the Bahamas when governments past and present have created so much uncertainty about Freeport and the business environment.

“They’re either going to repeal the Hawksbill Creek Agreement or try and do away with it. This limbo land is a cancer to Freeport’s business environment and population.”

Mr Smith added that the Government had been “completely out manoeuvred and out negotiated” by Hutchison Whampoa over the much-touted $300 million Freeport Container Port expansion.

Inducing the Hong Kong conglomerate to make this investment was cited as the principal reason for rolling back the 1 per cent Customs processing fee.

However, Mr Smith said Hutchison Whampoa had planned to make its investment regardless, and he added: “The Government put itself in a position where it gave Hutchison leverage over the Government for what it was going to do anyway.”

The 14 plaintiffs represented by Mr Smith include the Flying Fish Restaurant; Kelly’s Freeport; Freeport Gases; VTrade; Candid Security; Benchmark Consulting Services; Candid Security; and Guardian Fencing & Shutters.