The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Attorney General yesterday confirmed that Shell’s Bahamian subsidiary, which generated $1.6bn in pre-tax profits in 2023, will be subject to 15 percent corporate income tax on those earnings in future. 

Ryan Pinder KC, in a messaged reply to Tribune Business inquiries, reiterated that imposition of the just-passed Domestic Minimum Top-Up Tax (DMTT) on the energy giant’s local affiliate - as well as other Bahamian entities that are part of major multinational groups - will generate “significant” and much-needed extra revenue for the hard-pressed Public Treasury.

Speaking after it was revealed that Shell Western Supply and Trading paid nothing in direct taxes to the Bahamian government on those $1.6bn profits, he explained that the DMTT’s enactment will ensure this nation and its people now receive some benefit from these mammoth earnings.

Tribune Business calculations show that the Public Treasury would have received close to $240m had the DMTT, which gives legal effect to the 15 percent corporate income tax, been in place to capture the Shell subsidiary’s 2023 profits. The $240m is higher than the Government’s own estimates for when the tax has been in place for a full year, with forecasts ranging from $140m to $200m.

Given the scale of the revenue boost, several observers yesterday branded the new tax’s imposition on Bahamian entities that are part of multinational groups earning 750m euros or more in annual revenues as “a no brainer”.

And Ryan Pinder added that, if The Bahamas failed to implement the corporate income tax, those same profits earned by Shell and other locally-domiciled subsidiaries would instead be taxed in their home or regional head office jurisdictions with this country receiving zero benefit from economic activity occurring within its borders.

Shell, unveiling its 2023 ‘tax contribution report’ which details the taxes paid in all the jurisdictions where it operates, revealed its Bahamian trading subsidiary’s profits had increased by $45m or 2.9 percent year-over-year compared to 2022. They rose from $1.55bn in that year to $1.595bn in 2023.

Those earnings are equal to 12 percent of The Bahamas’ projected $13.247bn economic output, as measured in constant prices, for the current fiscal year. Shell Western Supply and Trading generated those profits from almost $29.5bn in total revenues, which represented a more than $1bn increase on 2022’s $28.29bn top-line and are more than double The Bahamas’ national debt of more than $11.5bn.

The Bahamian entity, which specialises in trading oil produced in Africa and South America, received $9.452bn of its revenues from third-party clients while the $19.989bn balance arose from related party transactions. As for its balance sheet, Shell Western Supply and Trading was shown to have more than $3bn in accumulated or retained earnings on its books, plus a further $1.205bn in “tangible assets”.

Yet none of these millions or billions touched the Public Treasury for the benefit of Bahamian citizens and taxpayers. “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 Limited (SWST). SWST sources crude oil from West Africa and Latin America, and trades globally,” Shell said of a business unit with 44 employees.

“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 Shell report confirms that zero corporate income tax was paid, or due to the Government, on those $1.6bn profits with no other direct payments made to the Public Treasury either.

That, though, appears about to change with the DMTT legislation’s recent passage through Parliament to give effect to the 15 percent minimum corporate income tax. The move, while intended to give effect to The Bahamas’ complianc with the broader G-20/OECD ‘minimum’ 15 percent global corporate income tax initiative, has also been billed as providing a potential revenue boost for the Government.

Ryan Pinder confirmed that Shell Western Supply and Trading’s profits will be caught by the new corporate income tax regime, telling Tribune Business: “Yes, it is anticipated that Shell Western will be a taxpayer under the DMTT legislative regime.”

Confirming that its multi-billion profits would be captured by other jurisdictions if The Bahamas fails to tax them, he added: “And yes, you are correct under the OECD Pillar Two framework that if we did not put in place a qualified tax regime, the profits of Shell Western would be taxed in the jurisdiction of its headquarters.

“The tax benefit to The Bahamas will be significant as there are other taxpayers in the jurisdiction that will be subject to the DMTT.” While The Bahamas had little choice but to comply if it was not to miss out on a potentially substantial new revenue source, the move is unlikely to undermine its competitive standing as around 140 other jurisdictions have committed to implementing the exact same tax and rate

Rupert Pinder, assistant professor of economics at the University of The Bahamas (UoB), told Tribune Business that “on the face of it” Shell Western’s multi-billion profits alone justify imposing a corporate income tax given the potential “windfall” it represents for the Public Treasury.

“You can understand why there is this push towards a corporate income tax,” he said. “It is essentially a windfall for the Government. It makes perfect sense. The Bahamas can only benefit from this arrangement. 

“In this case [Shell] I cannot think of any impact it has on the domestic situation. You’re talking about entities where the contribution to the domestic economy is quite negligible in relation to their earnings. I don’t know what else to add. It’s a no brainer.

“What it points to more substantively, in my view, is the amount of distortion in the economy. What it points to is the level of distortion to the extent that you have all these domestic industries subject to these direct and indirect taxes, and a lot of these IBCs are exempt,” Rupert Pinder added.

“Shell Western is not alone. There are so many companies able to take advantage of arbitrage with respect to tax arrangements. It points to a level of distortion in the economy. To me, it’s a no brainer.”

Paul Moss, president of Dominion Management Services, who has long advocated for The Bahamas to implement a corporate income tax albeit at a rate lower than 15 percent, argued that this nation should have adopted the necessary reforms more than two decades ago as the “hand writing was on the wall” for the ‘no tax’ model ever since this nation’s 2000 blacklisting.

Agreeing that the scale of Shell’s profits justify corporate income tax’s imposition, he argued that the oil giant’s Bahamian affiliate and other multinational subsidiaries like it likely pay an annual $1,000 fee to the Registrar General’s Department and little else in terms of taxes.

“You have to pay to be part of a country,” Mr Moss said. “The Bahamas, whatever it is, we need to charge these people some taxes. This is why I was advocating we ought not to have this imposed on us by the OECD or any other entity. We ought to do it for ourselves.

“This is one company [Shell] and we have thousands. A long time ago the hand writing was on the wall; from the year 2000 when we were blacklisted and how we responded to that. It was all about taxes.” Mr Moss reiterated his call for The Bahamas to implement its own, lower-rate corporate income tax of 5 percent, rather than the OECD’s 15 percent, although this nation has now signed up to the latter’s initiative.

Still, he added that implementing corporate income tax of any kind will enable this nation to shed its so-called ‘tax haven’ label and enter into double taxation treaties with other states. These can facilitate greater foreign direct investment (FDI) by ensuring profits are taxed at The Bahamas’ lower rates, and not in their home country jurisdictions, thus eliminating the threat of being taxed twice.

“I had a meeting with some businessmen from India in Dubai,” Mr Moss recalled. “They wanted to invest in The Bahamas, but because we don’t have tax agreements with India and other countries they could not.

“We have IBCs doing tremendous business in the country that are not paying their fair share. These people want to pay taxes, and they would have no difficulty paying 5 percent tax. They would have no difficulty. This is going to make a fundamental difference. They [the Government] are going to get money that they do not now.”