By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank's governor has warned against introducing a tax that solely targets profit repatriation on the grounds that it may deter foreign direct investment (FDI) into The Bahamas.

John Rolle said he "would not recommend" such taxation policy after Philip Galanis, the HLB Galanis accounting firm's principal, suggested that imposing a levy on the "expatriation of profits" by Bahamas-based companies to their overseas parents represented "low hanging fruit" in the Government's search for new revenue sources.

Speaking at the Bahamas Business Outlook conference, the Central Bank chief replied: "Personally I would not recommend that we deliver a tax system that only taxes profit remittances because, remember, that's still going to be impacting how they do the calculus as to whether it's profitable to invest.

"Often, the profitability calculation looks a whether the retained earnings will generate satisfactory returns or whether you sometimes take that capital or redeploy it. I think you have to be very careful about, you know, whether or not you are happy with anything trying to tax capital. You have to interpret it as trying to tax capital as it's being redeployed."

Mr Galanis interjected, saying: "I'm not thinking about capital, I'm thinking about profits." Yet Mr Rolle replied: "That's what it amounts to. You have to look at profits as capital because if they are retained you have to disclose it on the balance sheet. I would not recommend it."

The HLB Galanis accountant then came back on corporate income tax, which the Government is considering whether to implement both as a replacement for the Business Licence fee and to ensure The Bahamas complies with the G-20/OECD initiative for a global minimum 15 percent corporate tax.

"A corporate income tax system is what we need," Mr Rolle argued. "But, once we determine what that looks like, we'd better hope we don't have any element in it that certainly has a variable rate depending on whether there are remittances. I think we also have to understand that's included in the calculation when businesses initially decide to inject capital."

Mr Galanis yesterday told Tribune Business that the foreign-owned banks, such as Royal Bank of Canada (RBC), CIBC and Scotiabank, together with insurance providers and oil companies such as Sol Petroleum (Esso) and Rubis, were who he was targeting with a tax on profit repatriation.

"I don't consider a return of profits a return of capital," he argued. "Those are dividends. There's nothing to prevent the Government from making a policy decision with respect to expatriation. It effectively means we are paying citizens and entities in other countries for their dividends and we get no benefit."

Asserting that investors were unlikely to be deterred, or leave The Bahamas, because of such policies, Mr Galanis added: "What I'm saying is that we should get a bigger piece or share of the pie." Tribune Business reported last year that a Shell subsidiary paid not a cent in tax on $1.55bn of profits generated in The Bahamas.

The multinational energy giant, 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 debt but none of this reached the Public Treasury in the absence of a corporate income tax.

Shell Western, which specialises in the buying and selling (trading) of crude oil sourced from Africa and Latin America, 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.”