The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Prime Minister yesterday warned that implementing the 15 percent corporate income tax on major multinationals will be “a steep departure” for The Bahamas given that it has no history of such levies.

Philip Davis, addressing the House of Assembly on legislation for the so-called Domestic Minimum Top-Up Tax, said “significant capacity building” will be require within both the Government and private sector given that the new levy will require “unprecedented monitoring and tax administration capabilities”.

Nevertheless, he asserted that the tax’s implementation on Bahamian companies that are part of multinational groups with an annual turnover exceeding $800m will bring this nation into compliance with the global standards set by the G-20/Organisation for Economic Co-Operation and Development (OECD).

And, given that 140 countries have committed to the initiative, Mr Davis argued that compliance has preserved the competitiveness of The Bahamas’ financial services industry because all rivals will be doing likewise to establish a ‘level playing field’ environment.

The Prime Minister also said that failing to implement the 15 percent corporate income tax would result in The Bahamas losing out on the projected $140m in extra revenue that it is projected to generate as the profits/revenues generated by locally domiciled multinationals would then be taxed in either their home jurisdiction or regional head office territory.

However, Mr Davis did not disclose the net revenue impact from the new tax’s introduction. He confirmed that companies subject to the 15 percent corporate income tax will now be exempted from Business Licence fees, so as to prevent ‘double taxation’, but did not mention how much the Government will now forego from that levy and the extent to which it may offset the projected $140m.

And, while the Prime Minister went to great lengths to reiterate that the 15 percent corporate income tax will not impact Bahamian-owned businesses, as they are not part of multinational enterprises with turnovers exceeding $800m, he made no mention of the options laid out in the Government’s May 17, 2023, ‘green paper’ on tax reform.

This set out three potential choices, and structures, for extending corporate income tax to the wider Bahamian economy and largely doing away with Business Licence fees, but none of this was discussed by the Government during yesterday’s House of Assembly debate.

Still, Mr Davis voiced optimism that the relatively long consultation and warning had given companies affected by the corporate income tax sufficient time to prepare. He said: “This process necessitates changes to company accounting and tax management processes that may require resource and manpower additions that companies will need time to accommodate.

“Being proactive in our approach has give them the time they need, and will also give the Government time to prepare for this major change. This is a significant legislative and regulatory reform that will require unprecedented monitoring and tax administration capabilities. There are a number of changes that must be made systemically.

“We don’t have a history of an income tax of this kind. It is a steep departure from the Business Licence fees we typically charge. And it requires taking into account a wide array of information like specific expense types that we do not currently apply our tax administration and monitoring efforts toward. Needless to say, significant capacity building is taking place within the Government as we move forward.”

Mr Davis, though, voiced confidence that the Government’s compliance with the G-20/OECD minimum global corporate tax drive has preserved the financial services industry’s competitiveness. “We must also ensure that The Bahamas, as a leading financial services jurisdiction, remains fully compliant with global standards. This is critical because investors want to do business in compliant jurisdictions,” he said.

“This Bill was developed to bring us into full compliance with this requirement. We have demonstrated time and time again the seriousness with which we pursue compliance. It will never be said that The Bahamas does not make every effort possible to remain fully compliant.

“Earlier this year, we were removed from the EU’s blacklist of non-cooperative tax havens... We must now be proactive in ensuring that we remain off of any additional blacklists. Compliance is a key cornerstone of our financial services industry that we are keen to maintain.”

Mr Davis said the private sector shared the Government’s position that “introduction of this tax will not have a negative impact on our financial services industry, especially given the fact that it is a uniform global standard. We shall remain competitive”.

As for the revenue implications, Mr Davis said many of the Bahamas-based companies set to be impacted by the corporate income tax levy “have indicated their preference for paying the tax here rather than in their home-based jurisdiction”.

“As a matter of fairness, given the high levels of revenue generated by these multinationals, it seems appropriate that the Bahamian people would benefit. The $140m in projected government revenues will go a long way toward further strengthening the Government’s fiscal situation and funding key programmes to empower and support Bahamians,” he added.

“In fact, if we refuse to implement a Domestic Minimum Top-Up Tax, the annual turnover of these multinational entities in The Bahamas would eventually be taxed by other Jurisdictions. This would rob us of the opportunity for our people to benefit from the presence of these corporations. This Bill ensures that we capture this important source of revenue.”

Mr Davis clashed with Michael Pintard, the Opposition’s leader, over whether the Government has a mechanism to claw back revenues generated before the Bill becomes law as the G-20/OECD initiative was supposed to take effect from January 1, 2024. The Prime Minister said the Bill states when it comes into effect.

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“This is the beginning of a new approach to revenue generation in The Bahamas,” Mr Davis said.”We have successfully maintained our competitive advantages as a financial services jurisdiction while prioritising global compliance and bringing in significant revenues....

“It should be noted that this law applies to the entire Bahamas, including the city of Freeport. That is the intention. And all relevant changes will be made to ensure that we live up to our obligations and bring about the changes that are necessary for progress.

“Looking ahead, we are considering exempting certain structures, like investment funds and insurance companies, which may operate within a different business reality. The business community can rest assured that we will continue to be 100 percent transparent and involve them every step of the way.”