By NEIL HARTNELL
Tribune Business Editor
A group of Grand Bahama Port Authority (GBPA) licensees are “taking advice” on whether the Baha Mar ‘VAT exemption’ breaches the Hawksbill Creek Agreement, thereby giving them grounds to challenge it legally.
Fred Smith QC, the Callenders & Co attorney and partner, suggested to Tribune Business that the blanket waiver given to the multi-billion dollar project’s construction completion may violate Freeport’s own ‘Most Favoured Nation’ status.
Mr Smith said that just like Atlantis’s Heads of Agreement, the Hawksbill Creek Agreement’s section 2 (28) was a clause that stipulated Freeport, the GBPA and its licensees could not be discriminated against, or treated less favourably, in comparison to other businesses and investments elsewhere in the Bahamas.
“As a licensee of Freeport, I am confounded by the concessions that have come to light, because section 2 (28) of the Hawksbill Creek Agreement provides for a ‘Most Favoured Nation’ clause in investment agreements,” Mr Smith told Tribune Business of Baha Mar.
“There can be no discrimination against licensees which puts them at a detriment from a tax perspective compared to other investments outside Freeport.”
He added: “As a GBPA licensee, I pay VAT, and I ought to have been consulted on whether or not the Chinese investor at Baha Mar should have been given a VAT exemption.
“Licensees in Freeport ought not to pay VAT if Baha Mar is not paying VAT. Certain licensees and I are taking advice as to whether or not the decision to give the VAT exemption can be Judicially Reviewed as to whether or not it is in breach of the Hawksbill Creek Agreement.”
Mr Smith added that if an effective legal challenge were to be mounted, he and other GBPA licensees would need sight of all agreements relating to Baha Mar’s construction completion and new ownership. The former is currently ‘sealed’ by Order of the Supreme Court.
The well-known QC described the Hawksbill Creek Agreement’s section 2 (28) as “a non-discriminatory” provision in favour of the GBPA and its 3,500 licensees.
The wording appears to prevent government actions, whether by legislation, policy or regulation, that treat Freeport-based businesses less favourably than their counterparts located elsewhere in the Bahamas. And, in the event of a dispute, the issue is to go to arbitration in the first instance.
The long-winded clause, which has yet to be tested by legal argument in the Supreme Court, states: “That during the continuance of this agreement there will be no restrictions, regulations or conditions, the making or imposition of which are not excluded or prohibited by the provisions hereinbefore contained, made or imposed by the Government affecting the Port Area or any business, undertaking or enterprise carried on therein differently from the rest of the Colony, and which thereby discriminate against the Port Area or any such business, undertaking or enterprise carried on therein when compared with the rest of the Colony, and that there will be no legislation enacted, the enactment of which is not excluded or prohibited by the provisions hereinbefore contained, which affects the Port Area or any business, undertaking, or enterprise carried on therein differently from the rest of the Colony, and which thereby discriminates against the Port Area or any such business, undertaking, or enterprise carried on therein AND if any such restriction, regulation or condition is made or imposed, or if any such legislation is enacted which in effect affects only the Port Area and/or any business, undertaking or enterprise carried on therein, the question of whether such restriction, regulation, condition or legislation is in fact discriminatory against the Port Area or any business, undertaking or enterprise carried on therein shall, at the request in writing of the Port Authority, be submitted to arbitration as hereinafter provided for determination.”
Meanwhile, a former Baha Mar insider suggested in a letter to The Tribune that the political controversy which erupted after this newspaper revealed the project’s construction completion is totally VAT-free was ‘much ado about nothing’.
The insider, who is known to this newspaper, said Baha Mar’s former developer, Sarkis Izmirlian, had been granted a similar VAT ‘exemption’ under the terms of his agreement with the Government, and that the Christie administration had merely extended this to China Construction America (CCA) and its sub-contractors/suppliers.
And they also expressed “surprise” that Jerome Fitzgerald, minister of education, science and technology, did not fully explain this when he addressed the controversy on the Government’s behalf last week.
The source pointed out that Bahamas Cargo & Logistics, one of the main Customs brokers engaged by Baha Mar for the project, was owned by Mr Fitzgerald’s family. The Minister could not be contacted for comment on this and other issues over the holiday.
The insider, meanwhile, explained that during the former Ingraham administration’s 2007-2012 term, a clause was inserted in Baha Mar’s new Heads of Agreement to “safeguard” the project from any new or increased taxes that may be subsequently implemented.
“Every company which reaches an agreement with the Government in a multi-year project normally puts in a clause to safeguard it from new taxes and tax increases during the term of the agreement,” the insider said.
“That is uses in every country internationally, and is common in all contracts with governments during the duration of the project because it changes the overall cost.”
This “safeguard”, they explained, kicked-in for Baha Mar when VAT was introduced in January 1, 2015, following discussions between Mr Izmirlian’s attorney and those for the Government.
Due to the “cash flow burden” presented by the ‘input’ VAT, the insider said Baha Mar “did not have to pay” the tax but, instead, had to “account for it” as a kind of tax deferral.
“Therefore, as Mr Fitzgerald’s family customs broker firm well knows, all VAT payable to the Customs Department due after January 1, 2015, was recorded but not paid to Customs on all main shipments, as Baha Mar Ltd was exempt,” the insider said.
“VAT was paid on all small shipments and airway bills, FedEx, DHL, UPS.. that were submitted on behalf of Baha Mar by the mail shippers, because they were not aware of Baha Mar Ltd’s VAT delay payment agreement. Some subcontractors that were not aware also paid VAT on imports.”
Given the VAT treatment extended to Mr Izmirlian, the insider said it was “understandable that CCA received a break in VAT, the same as Baha Mar Ltd already had”.