The Tribune

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.