By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas should initially only target companies generating more than $5m or $10m in annual net profits with a corporate income tax, a well-known attorney is arguing.

Carey Leonard, the former Grand Bahama Port Authority (GBPA) in-house attorney, told Tribune Business that excluding small and medium-sized enterprises (SMEs) from the tax net would make such a tax “simpler and cheaper” to implement while the government built-up the capacity required to administer and eventually collect it from all companies.

Arguing that there is “no way out” for The Bahamas given US backing for a global minimum corporate tax rate, Mr Leonard argued that this nation needed to develop such a structure for its own purposes rather than have it imposed by the likes of the G-20 industrialised nations or the Organisation for Economic Co-Operation and Development (OECD).

However, other Bahamian financial services professionals have warned against rushing to capitulate to the renewed global push for harmonised corporate income tax rates.

Philip Galanis, the HLB Galanis & Company managing partner, instead told this newspaper that The Bahamas needed to form an alliance with other Caribbean international financial centres (IFC) to warn the Biden administration about the great harm it could inflict upon itself by turning these countries into “basket cases”.

The former MP and senator argued that “not only the economy but democracy” in The Bahamas would be undermined if financial services, arguably the most important industry second to tourism, was wiped out or had its competitiveness severely blunted.

The case for not jumping into corporate income tax was strengthened earlier this week after Ireland blew a hole in what had previously been an emerging global consensus by saying it will resist efforts to set a global minimum rate if they undercut its competitiveness.

Pascal Donohoe, the Irish finance minister, said he would support a global agreement that allowed “appropriate and acceptable tax competition” between states with his country keeping a rate that is significantly below the 21 percent called for by US president, Joe Biden, and his treasury secretary, Janet Yellen.

Ireland has one of the lowest corporate tax rates in the European Union (EU) at 12.5 percent, which has proven attractive for digital multinationals such as Apple and Facebook when it comes to minimising their tax burden by directing profits and revenues away from higher tax jurisdictions.

Still, Mr Leonard, now a Callenders & Company attorney, argued: “The Bahamas needs to come up with its own scheme, and I’d definitely come up with a corporate income tax but initially limit it to companies making above $5m or $10m a year in net profit....

“It cuts out the small business people and simplifies the auditing and oversight procedures for the Government. You’re dealing with fewer companies, and companies making that money usually have audited financial statements. That would be a good place to start for the Government.”

Focusing on higher-yielding, but a smaller number of, companies would simplify the costs and administrative burden for government and the private sector, Mr Leonard argued, and allow the Department of Inland Revenue (DIR) time to develop the necessary collection and oversight expertise.

“For us, a massive effort in one go is not going to work,” he told this newspaper in warning against a blanket corporate income tax implementation. “Put corporate income tax on every company and it’s overwhelming. Doing a limited number of large companies who have audited accounts is much easier for you to get up to speed on.

“This will be a whole new ball game for us, but I don’t see any way out of it. We need to get on with it in a way that is easy for us to implement and cheap for us to implement. “ Mr Leonard said his $5m or $10m initial threshold would capture most BISX-listed firms; the oil companies; banks and a large number of financial services providers; the likes of Freeport’s major industrial firms; and others.

“That would be where the big money comes from in my estimation,” he added. “If you go chasing after the small companies the oversight is phenomenal, and it will be very difficult for the Government to monitor, certainly at the beginning. I’d go after those that generate the most and require the least amount of work from the Government.”

However Mr Galanis, while acknowledging that the Biden administration is seeking to close off all tax avoidance loopholes by US multinationals amid efforts to raise its corporate tax rate to 28 percent, advocated a completely different approach.

He reiterated calls, often made previously, for The Bahamas to form an alliance with other Caribbean territories and IFCs and seek to “influence” Washington D.C’s stance “before it gets out of hand”.

“We’ve got to get on with it, and move that ball forward rather than be dictated to,” Mr Galanis argued. “I don’t think it necessarily means we have to get out ahead of it by implementing some form of corporate income tax.”

The Bahamas’ proximity to the US means that undermining this nation could impact the latter’s own national security, he added, saying: “If we become a basket case like some other countries, or a failed state, that is no good for anyone.”

The Biden administration’s stance is a marked change from the position taken by its Trump predecessor, which was more focused on allowing sovereign nations to set their own tax rates and opposed to European efforts to impose a so-called “digital tax” on US multinational giants such as Amazon, Google, Facebook and Apple.

However, the newly-elected Democratic government sees a global minimum corporate tax as critical to preventing such companies from minimising their tax burden via creative structures that shift profits and revenues to low-tax nations such as The Bahamas and other IFCs

Its view, like that of the OECD and high-tax European nations such as France and Germany, is that a global minimum will prevent a so-called “race to the bottom” on tax rates. Pascal Saint-Amans, head of tax administration at the OECD, told the UK’s Guardian newspaper: “What the US has put on the table … [is saying] we want the rest of the world to follow, we kill tax havens. The game is over. Let’s move to a minimum agreed level.”