Ginn developers eyes ten-year VAT 'deferral'

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The $2.8bn developer of the former Ginn project may be in line for a ten-year VAT "deferral", two decades of property tax breaks and "special fuel concessions", according to leaked papers.

A draft copy of the Government's heads of agreement with Skyline Investments discloses the now-standard "taxes for jobs" trade-off in return for the developer creating 1,395 permanent posts and 1,025 in the construction phase.

KP Turnquest, deputy prime minister, and other Cabinet members did not respond to messages seeking comment yesterday, but a well-placed source familiar with the project in Grand Bahama's West End indicated it was a genuine document by confirming it corresponded with the incentives the Toronto-based developer had been seeking.

"Those things, that subject matter, would definitely be on the radar," the source, speaking on condition of anonymity, said. "Those things will definitely be part of the discussion, and I knew they were on the radar. All those items were discussed.

"A lot of the things you mentioned were part of the [original] Ginn agreement. The new twist was going to be VAT, and I knew they [Skyline] would like to get the same thing Baha Mar did."

The draft document is not signed or dated, and it is likely to have been tweaked further prior to any signing. Tribune Business understands that the Government has undertaken "painstaking due diligence" on the heads of agreement, with the clauses reviewed by multiple persons, amid its anxiety to avoid a repeat of the Oban Energies debacle.

Another contact familiar with developments, and speaking on condition of anonymity, suggested the Government may have quietly signed the Skyline agreement as much as four weeks' ago, but that could not be confirmed.

The draft, though, appears to give Skyline equal treatment as Baha Mar's new owner, Chow Tai Fook Enterprises, by giving it a similar VAT "deferral" on its input costs until construction is completed and the project operational. This means that all VAT due, and accumulated, over the next decade will not become payable until 2028.

"In an effort to alleviate the developer's cash flow burden, uphold the VAT legislation and establish and maintain an audit trail, the developer wants to enter into a VAT Relief Scheme with the Department [of Inland Revenue]," the document states.

"The scheme will provide a mechanism to account for VAT in relation to the overall project, while removing the need to physically pay VAT on transactions between approved participants of the programme."

The draft document then says the Government agrees to "defer payment of VAT on the importation of goods, materials and equipment" used in construction activities at the 2,012-acre West End project "until the anticipated completion in December 2028".

A similar deferral will apply to VAT payable on land purchases, although this is no longer applicable to end-user sales as this was removed from the "transaction tax" structure in the Budget - indicating the draft may be slightly old.

Still, it provides a good insight into the negotiations between the developer and the Government, with a host of renewable energy items and fuels being eyed for VAT 'exempt' and 'zero rated' status. The renewable energy concessions are designed to facilitate the creation of the project's 200-acre 'Smart City', which is intended to attract technology companies to Grand Bahama.

While the 10-year VAT "deferral" may spark a knee-jerk reaction among some, Skyline Investments and its affiliates would suffer a huge cash flow drag if they have to pay the tax on their upfront construction inputs.

The developer has no 'output' VAT to collect that will offset this, and it would only slow the project down. The Government will instead collect something of a "tax windfall" when the project starts operating and collecting VAT from guests and customers.

Baha Mar received similar treatment from the former Christie administration, the only difference being that it is a resort while West End is more akin to a real estate play. "In order to make the project viable and competitive in a greenfield development, Stamp Duty and VAT are required to be treated in the manner set out below," the draft states.

"In order to make the project viable and competitive, special concessions are required with regard to fuel in light of the magnitude of the project and its proximity to south Florida as well as the proximity to the city of Freeport where reduced fuel prices are available due to the provisions of the Hawksbill Creek Agreement."

Other investment incentives laid out in the draft include a 20-year exemption from real property taxes, along with the imposition of any tax on a "taxable supply, sales, earnings or revenues derived" from the developer's operations.

And, under a clause headed "No increase in taxes", the document adds: "The Government will ensure that the concessions, investment incentives and benefits granted to the project are not diminished in any way by the imposition of any new taxes or increase in existing taxes payable by or in relation to the project for a period of 10 years."

The draft also outlines Bahamian laws that will be changed to facilitate the Skyline Investments project. These include legislation that will be enacted to allow payment of an annual cruising permit for vessels docking in local marinas, regardless of how many times they travel outside the Bahamas.

And legislative changes will also enable the West End developer to enter into net billing deals with Grand Bahama Power Company to "facilitate the purchase and selling of renewable energy". The price involved in both selling and buying will be at a 10 percent discount to existing GB Power rates, with "no limits" on the amount of power Skyline can produce or the MW size of its renewable plant.

The renewable energy focus is designed to support the proposed 200-acre "Smart City" hub for technology companies, which will be developed in phase three of the build-out. The draft says its development will be placed under control of a Bahamian-owned management company, although there is no mention of who will own this.

"The developer shall co-operate with the management company and the Government in the formation of 'The Bahamas Global Blockchain Council' to lead and guide implementation, and provide direct consultation to the Government, on the implementation of Blockchain technology to enhance Government efficiencies and operations throughout the entire Commonwealth of the Bahamas," the document adds.

"The Smart City international marketing plan and campaign will also be finalised during Phase three with a strategy to include a global promotional tour to strategic cities, countries and technology companies to highlight the benefits, incentives and competitive advantages of Grand Bahama as an international technology hub; The Bahamas as a high-tech jurisdiction; and establishment of offices, businesses and corporate structures within the Smart City."