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Baha Mar ‘Asset Transfers’ Vat And Duty Free

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE two ‘asset transfers’ necessary to effect Baha Mar’s sale to Chow Tai Fook Enterprises (CTFE) were “exempt from all relevant taxes”, including VAT and Stamp Duty, with the $4.2 billion project’s completion also escaping the 7.5 per cent levy until end-2019.

The Heads of Agreement between the Government and the Hong Kong-based conglomerate, signed on April 25, 2017, effectively confirm that the Christie administration has traded tax concessions for Baha Mar’s completion and $101.5 million payment to Bahamian creditors.

Baha Mar’s ‘soft opening’ on April 21 seems to have triggered both the Heads of Agreement’s completion and its public disclosure, which confirms that the mega-resort’s construction completion and furnishing is free of all VAT and import duties.

“VAT (when applicable) would have been paid on all materials and services necessary for construction and equipping of the project,” the Heads of Agreement’s ‘clause 8.1’ states.

“In order to complete and open the project, the project company shall be eligible for exemption through December 31, 2019, from Value-Added Tax and all exemptions granted under the Hotels Encouragement Act and other legislation, including but not limited to, exemption from Customs duty in respect of all materials and equipment used in the construction, equipping, furnishing, completing and opening of the project.”

Opposition politicians howled with outrage earlier this year after Tribune Business revealed that Baha Mar’s construction completion was entirely VAT-free.

However, Tribune Business sources confirmed that Baha Mar was enjoying the same VAT-free incentives under former developer Sarkis Izmirlian prior to the Chapter 11 bankruptcy filing.

They pointed out that every developer normally included a clause in its agreements with the Government to protect them from any new taxes being imposed while construction was ongoing, such as VAT, which was introduced on January 1, 2015. Mr Izmirlian’s team and the Government, Tribune Business understands, agreed to treat VAT as a deferred tax.

Meanwhile, the CTFE Heads of Agreement confirms that no VAT or Stamp Duty, representing the 10 per cent real estate ‘transfer tax’, will be paid on the two ‘sales’ of Baha Mar’s assets.

The first sale was from Baha Mar’s Deloitte & Touche receivers to the China Export-Import Bank’s Perfect Luck vehicle, taking Baha Mar’s assets out of receivership. The second involves the mega resort’s sale, once its construction is completed, from Perfect Luck to CTFE’s CTF BM Operations vehicle.

The Heads of Agreement reveals that CTF BM Operations will inherit “all of the benefits and concessions” granted to the China Export-Import Bank and Perfect Luck by the Government in their August 22, 2016, Heads of Terms.

That document is the one that remains sealed by the Supreme Court, upon the request of the China Export-Import Bank. The Christie administration has repeatedly promised that it would seek the Supreme Court’s permission to disclose this, too, but has recently said the Heads of Terms can only be unveiled with the bank’s co-operation.

Still, the CTFE Heads of Agreement confirms: “It is understood and agreed that pursuant to the Heads of Terms, the transfer of assets in connection with the project from Baha Mar to Perfect Luck or its affiliate, and subsequently the transfers of assets or shares from Perfect Luck to [CTF BM Operations] would be exempt from all relevant taxes related thereto.”

Opposition politicians had again previously criticised this aspect of the deal, arguing that the application of the 10 per cent real estate ‘transfer tax’ could have generated between $100-$200 million in much-needed revenues for the Public Treasury, given the country’s $7 billion-plus national debt.

However, Gowon Bowe, the Bahamas Chamber of Commerce’s chairman, reminded them that the 7.5 per cent VAT element would be treated as a ‘business input cost’, and offset or netted off against future VAT payments generated when Baha Mar became operational.

He said the Government had the option of collecting its VAT money now or later, once the property became operational, and the Christie administration has clearly opted for later.

However, the Heads of Agreement added: “VAT shall not be payable on any complimentary costs related to hospitality customers and activities during the operation of the resort.”

However, the 7.5 per cent levy is payable on complimentary revenues “and ancillary services” for gaming customers.

The Heads of Agreement also makes clear that Baha Mar’s sale to CTFE will be achieved via the China Export-Import Bank’s sale of shares in Perfect Luck, with this sale - and any subsequent security taken over the shares for debt financing - to also be VAT free. Stamp Duty on any Perfect Luck share security taken “within 12 months of construction completion” will only attract Stamp Duty of $100.

Baha Mar’s new owner has also been granted the standard 10-year real property tax exemptions, along with the typical incentives handed to residential units placed in a rental pool.

Comments

ConchFretter 2 years, 6 months ago

$4.2 billion x 7.5% = $315 million.(lost VAT revenue). That don't include any future lost VAT revenue between now and end of 2019.

$315 million - $101.5 million payment to Bahamian creditors = $214 million

Yeah, I would give away $100 million dollars too if it meant I saved over $200 million on the back end!!

Once again, we as a country are "penny wise, pound foolish".

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Well_mudda_take_sic 2 years, 6 months ago

Re-post: Many of the Baha Mar agreements should be found to have no legal validity in as much as they were knowingly entered into by a corrupt Christie-led government and equally corrupt foreign controlled enterprises with the aim of defrauding all Bahamian taxpayers. The Bahamian people have been unjustly harmed as a consequence of all the corruption involving the Baha Mar development. A properly conducted Royal Commission of Enquiry should have little difficulty in coming to such a conclusion.

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John 2 years, 6 months ago

Bahamians in general and Bahamians in businesses that compete with the likes of Bah Mar need to start taking the government to court for inducing and promoting unfair competition. Why should all, ALL Bahamians have to be forced to pay a smorgasbord of taxes, do their own advertising and promotions and still have to compete with Bah Martha has gotten treasure chests of government concessions, will be paying little or no taxes and still gets governments commitment to spend $4 million a year to promote the property. Can you tell me when Bah Mar will ever put a red cent in our government's coffers? What is the real benefit of having except they provide jobs? And even then they are allowed to bring in foreign workers to compete with Bahamians? Has government considered the flip side of the coin? What if Chi Tia Fook come in here and take over Bah Mar? But the golden egg is not as gold as they expected? So they run the property into the ground, ditch local workers, then high tail out of the country, leaving millions and millions of unpaid bills in their wake? Who will be responsible for the cleanup? What role will China ExIm bank play? Bet your vote the bank is trying to get all its expenses paid up front and has its loan payment plan to recover as much of the loan at the front end, while the property is still new and not deprecated. Our government, on the other hand is giving away everything it possibly could with no mechanism in place to recover should the operators of Bah Mar fail to perform. And Bahamians wonder why there is an ever increasing national debt and why the tax burden on regular Bahamians is so heavy. Ignorant government agreements that give away everything, including the kitchen sink. And the retards stand on stage under the spotlight and pat themselves on their back (sides). Like they have done something novel!

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John 2 years, 6 months ago

*nobel...novel does it make a difference in this instance since it does sound more fictional than brilliant!

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