The Tribune

• Energy giant legally pays not a cent on local earnings

• Figures said to strengthen corporate income tax case

• Lower rate competitive advantage to beat OECD/G-20

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The case for imposing a corporate income tax was yesterday said to be have been strengthened by revelations that a Shell subsidiary paid not a cent in tax on $1.55bn of profits generated in The Bahamas.

The multinational energy giant, unveiling its 2022 global “tax contribution” report, revealed that Bahamas-based Shell Western Supply and Trading earned pre-tax profits equal to 12.4 percent of the country’s $12.556bn total public sector but none of this reached the Public Treasury in the absence of a corporate income tax.

Shell Western, which specialises in the buying and selling (trading) of crude oil sourced from Africa and Latin America, generated total revenues worth $28.29bn from these activities last year - a sum that is more than double, or twice as large, as The Bahamas’ total public sector debt.

Combined revenues produced by Shell’s Bahamian subsidiary increased by almost $7bn or 31 percent year-over-year, while profits nearly tripled from the $571.441m achieved in 2021. Yet the energy giant’s report made clear that none of its millions/billions were taxed in The Bahamas and, as an International Business Company (IBC), it only paid a very modest amount of taxes and fees locally.

“Shell has been present in The Bahamas since 2002. As of 2018, Shell’s principal business in the Bahamas is Shell Western Supply and Trading (SWST). SWST sources crude oil from West Africa and Latin America, and trades globally,” the Shell report said.

“The Bahamas does not impose corporate income tax on international business companies (IBCs) operating in the country. However, international business companies pay indirect taxes and fees in The Bahamas. The increase in profit before tax is the result of higher crude oil prices.”

When these revelations were brought to their attention, financial services executives again urged The Bahamas to “get on the front foot” and beat the OECD/G-20 push for a ‘minimum’ 15 percent global corporate income tax by implementing a lower rate version to suit its needs and maintain economic competitiveness.

Arguing that such a move would not drive global multinationals such as Shell from this jurisdiction, as there will soon be “nowhere to hide”, they argued that the energy giant’s disclosures present a potential business opportunity for The Bahamas as they indicate there is “a tremendous amount of global trading that needs a tax home”.

Corporate income tax discussion has been muted since the passing of the end-August deadline for feedback on the Government’s so-called ‘green paper’ to be submitted. The Davis administration was then supposed to publish a summary of the suggestions it received, before developing a ‘white paper’ that more fully signals the tax reform direction it plans to take, but none of these steps have yet occurred.

Paul Moss, president of Dominion Management Services, told Tribune Business yesterday that the figures disclosed by Shell “certainly don’t change my mind” on implementing a lower corporate income tax rate than the OECD/G-20’s 15 percent in a bid to gain a competitive advantage for The Bahamas.

“Shell or companies like that, these are extraordinary companies,” he said. “There are many companies that are IBCs which are making billions of dollars and not paying any taxes. We need a low rate that captures everybody as opposed to making it very difficult for companies with a 15 percent rate which may kill their business off.

“I think the corporate income tax rate is something we have missed the boat on and continue to miss the boat on, because there are companies in this country doing well and not paying a single dime. I believe that if we say to them they have an option of paying 1-2 percent of their profits in tax, I think they’ll take that up and pay it.

“We’re too afraid of the boogeyman. We think if we tax these people they will run away. But there’s no place to run. You cannot hide... There’s a lot of money being made here. I know of a company from Texas that made about $100bn in profits about ten years ago. That’s a good chunk of change. They paid nothing. They paid $1,000 in fees to the Registrar General’s Department.”

If the OECD/G-20’s 15 percent ‘minimum’ global corporate income tax rate was applied to Shell’s Bahamian subsidiary, Tribune Business calculations show this would generate around $233m worth of taxes. While this may be over-simplistic, it does highlight the extent of the potential tax boost that could accrue to the Public Treasury from such a levy.

“I think that demonstrates when persons or entities are parties to the jurisdiction they should be making an equitable contribution to the economies which they operate from,” Gowon Bowe, Fidelity Bank (Bahamas) chief executive, said yesterday.

“Ultimately that would demonstrate the level of corporate income tax that we would have to levy and be assessing on all entities in the jurisdiction to encourage us to be more competitive.... It’s more about The Bahamas looking at our opportunities and saying if we can be equitable by having all entities operating in the economy contributing on an equal footing with taxes and revenues to the Government there’s an opportunity to be extremely competitive.”

Mr Bowe argued that The Bahamas may “be able to justify” implementing a corporate income tax with lower rate than 15 percent if it can show this generates sufficient revenues to cover all government spending and eliminate annual Budget deficits. The present tax burden is borne largely by companies operating in the domestic Bahamian economy as opposed to the international side.

Asserting that the 15 percent cited by the OECD/G-20 is “not a magical number”, he added: “If all entities are contributing equitably we should not be running a deficit, and that’s what The Bahamas should focus its attention on.

“The Bahamas should be on the front foot, maybe justify a lower rate, and be more competitive because the size of the economy demonstrates we don’t need a higher tax rate. We are at a level that meets our needs.

“Most of these [Shell-type] entities have no difficulty paying the same tax as they do in their home jurisdictions,” Mr Bowe added. “We shouldn’t be at the back of the pack because these large entities prefer certainty over tax avoidance. Having a rate that differentiates, and can be put forward, gives them greater confidence that The Bahamas will stay at that rate as opposed to holding on and being blacklisted.

“We should simply be riding along the front trend, not too far ahead, but providing greater certainty for these entities so they can plan into the future and they will stick with us... We have to look at this, not wait until we are obligated and mandated. We don’t want businesses packing up and leaving The Bahamas because there’s no clarity.”

A corporate income tax would ensure The Bahamas complies and fulfills its obligations as one of 140 countries that have signed on to the G-20/Organisation for Economic Co-Operation and Development (OECD) drive for a minimum 15 percent global corporate tax. In the first instance, this applies only to corporate groups and their subsidiaries that have a minimum annual turnover in excess of 750m euros.

The ‘green paper’ on “corporate income tax strategies for The Bahamas” revealed that none of the four corporate income tax options being considered will have a positive impact on Bahamian economic growth, employment, foreign and domestic investment, with the fall-out negative in all bar two instances.

The Davis administration, following studies by the Deloitte & Touche accounting firm, said it has to consider “the trade-off between raising government revenue at the expense of economic activity” in all four scenarios as it mulls historical changes that will potentially eliminate Business Licence fees for most companies and replace them with a corporate income tax.