The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas must not implement a corporate income tax “on the narrow performance of entities” such as Shell which last year paid zero tax on its local subsidiary’s $1.55bn profits.

Hubert Edwards, the Organisation for Responsible Governance’s (ORG) economic development committee head, told Tribune Business that the massive 2022 earnings generated by Shell’s Bahamian affiliate posed “an interesting question” as to whether this nation should capture a portion of that $1.55bn by switching to corporate income tax.

He argued, though, that a much wider analysis of the impact from such a seismic taxation change must be conducted on the entire Bahamian economy and businesses of all sizes must be conducted before a decision is taken on which direction to move in.

Mr Edwards, while acknowledging the Government’s need for revenues to fund public services and infrastructure development, told this newspaper that this must be balanced against the possibility that implementing corporate income tax would drive international business and associated jobs away from The Bahamas.

The G-20/OECD minimum 15 percent global corporate tax initiative, if ever implemented, could act as a barrier to corporate flight given that - in theory - there would be no hiding from the ‘one size fits all’ worldwide taxation this seeks to impose. The Bahamas is among 140 countries that have already signed up to the 15 percent minimum initiative, hence this year’s corporate income tax consultation.

As to whether the mammoth untaxed profits earned by Shell justify The Bahamas taking a deeper look at corporate income tax regardless of global pressures, Mr Edwards said this nation cannot justify changing its system on the basis of figures generated by just a few entities.

“It’s an interesting question to pose,” he told Tribune Business of corporate income tax. “I think that what one has to be mindful of is the fact that The Bahamas prides itself on, and creates a value proposition, by having no corporate income tax or low taxation in many regards compared to other jurisdictions.

“The fact an organisation would be here without the expectation of paying income tax or corporate income tax is to be expected. Whether or not that strengthens the argument [for corporate income tax], I don’t think one should want to do so on the basis of just one large entity. It should be on the broader needs and broader strategic thrust of the country, and where we want to go exactly with our tax infrastructure.”

Mr Edwards argued that basing tax reform decisions on just the revenues and profits generated by large multinational entities such as Shell could produce a skewed outcome that ignores potential “downsides” for smaller economic operators.

“It’s not a decision to be made on the narrow performance of one or two entities,” he said. “It’s certainly a ‘pro and con’ analysis which needs to take place because movement in one direction could change the value proposition, and the question is will the changed circumstance benefit the country more than what currently exists?

“All factors need to be taken into consideration. There’s a need for more government revenue and providing services and the requirement to expand infrastructure and so forth. On the flip side, if there’s such a change in the tax base will this result in companies moving away from The Bahamas or reducing their operations in The Bahamas? Will that result in a loss of jobs?

“We have to look at this in a holistic manner. If you tip on one side, you have to pay the piper on the other side. We expect policymakers to be very deliberate, intentional and balanced in that regard.”

Shell, 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 employs 37 persons in The Bahamas, specialises in the buying and selling (trading) of crude oil sourced from Africa and Latin America. It 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.”

Shell’s Bahamian subsidiary had $2.409bn in accumulated earnings on its books at year-end 2022, and $868.316m in “tangible assets”, all built by a company with just $100,000 in stated capital.

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.

Several financial services executives have suggested The Bahamas implement a lower corporate income tax rate than the 15 percent in a bid to gain a competitive advantage. However, the G-20/OECD initiative would allow a company’s home jurisdiction to impose a so-called ‘top up’ tax that would take the rate levied on repatriated Bahamian profits to 15 percent. This nation would thus miss out on the difference.