By NEIL HARTNELL 

Tribune Business Editor 

nhartnell@tribunemedia.net

SANDALS is disputing assertions by the Bahamian tax authorities that its Emerald Bay resort only reported 40 percent of revenues earned as it defended its one-of-a-kind “business model”.

Melissa John, the Exuma hotel’s financial controller, in a September 8, 2023, letter to the Department of Inland Revenue (DIR) denied the property had failed to properly disclose “the true nature of transactions” which have sparked demands for $30.844m in allegedly unpaid VAT and Business Licence fees combined.

The Department’s audit findings, which covered six years between 2017 and 2022, claimed the tax arrears had arisen because Sandals Emerald Bay and its operator, Clearview Management Ltd, had under-reported gross revenue income for the period by more than $284m.

The dispute, according to documents filed with the Supreme Court, appears to result from the Sandals’ corporate structure and business model. All guest bookings and payments are made to the resort chain’s corporate parent, Sandals Resorts International 2000, and its third-party booking platform and sales agent, Unique Travel Corporation. Both these entities are domiciled in Panama.

Rather than funds flow up the corporate chain, from subsidiaries to parent company, in Sandals’ case the money trail appears to move in the opposite direction - from Sandals Resorts International 2000 to the resort where the relevant guest has booked their vacation.

The crux of the Department of Inland Revenue’s assessment, and eight-figure tax demand, is that Sandals Emerald Bay over that six-year period only declared the net income received from its parent and not the gross sum collectively paid by tourists to stay at the Exuma property. As a result, the resort both under-reported and underpaid VAT and Business Licence fees for that period.

“The total taxable supplies that were reported by Clearview Management were based on the net amount paid.. by Sandals Resorts International 2000 and not on the amount paid by clients to stay at the Sandals Emerald Bay resort,” the Department of Inland Revenue asserted in a July 20, 2023, letter to the hotel’s operator.

“Our position is that the taxable supply made by Clearview Management is the amount charged to the client for the room without any deductions for fees and/or services charged by related parties.” The Department of Inland Revenue is thus arguing that “taxable supplies”, upon which the amount of VAT due is calculated, should be based on Emerald Bay’s gross - not net - income.

Arguing that Sandals Emerald Bay had breached the VAT Act by making “a false or misleading statement” in filing incorrect returns, the Department of Inland Revenue added: “In filing the returns for Clearview Management, you have reported taxable supplies of $190.768m compared to the calculated revenue of $474.919m.

“You have only reported 40 percent of the revenue actually earned during the audit period. You have done this by reporting the net amount of income you receive from your parent company, Sandals Resorts International 2000, instead of reporting the gross amount of income received and then deducting the amounts withheld as expenses.

“In addition, you have made a false or mislead- ing statement by reporting the net amount of income and not disclosing the true nature of the transactions.” These assertions, though, were rejected in their entirety by Sandals Emerald Bay’s reply on September 8, 2023.

Ms John, in her letter to Shunda Strachan, the Department of Inland Revenue’s acting controller, retorted: “Clearview Management has reported 100 percent of the gross income it has received from Sandals Resorts International 2000. We dispute the calculated revenue and the fact you estimate we have only reported 40 percent of the revenue earned.

“At no time have we made an omission, a false or misleading statement. In the conversations and correspondence with the Department of Inland Revenue, we have been open in how the Sandals business model works, which is different to other hotels which operate in The Bahamas. The income reported in [by] Clearview Management is the income it has earned.”

Both the Government and Sandals were tight-lipped on the tax dispute yesterday. Michael Halkitis, minister of economic affairs, and Ryan Pinder KC, the attorney general, declined to comment on the matter the latter saying: “I don’t comment on active matters before the courts.”

Simon Wilson, the Ministry of Finance’s financial secretary, could not be contacted for comment and did not respond to messages, while Mrs Strachan, the Department of Inland Revenue’s acting controller, also could not be reached. Department of Inland Revenue sources hinted that they were aware of the Sandals matter but said no more.

Tribune Business also reached out to Jeremy Mutton, Sandals Emerald Bay’s general manager, and was told by the resort’s spokesperson that Sandals’ corporate office would issue a statement on the tax dispute. However, no statement was received before press time last night.

The dispute is now before the Supreme Court after Sandals Emerald Bay’s operator filed a Judicial Review challenge in mid-January 2024 as part of a two-pronged counter to the Department of Inland Revenue’s demands.

One aspect involves challenging the sum demanded, which is for $29.101m in VAT, $1.688m in Business Licence fees, and the “maximum” possible penalty under the VAT Act of $570,000, before the Tax Appeals Commission.

The other angle, which is the subject of the Judicial Review, is the demand by the Ministry of Finance and Department of Inland Revenue that Sandals lodge a $30.844m cash bond - equal to the disputed tax sum - so that the appeal to the Tax Commission can proceed.

The VAT Act’s section 81 (s) (c) stipulates that any challenge to a Department of Inland Revenue tax assessment must be “accompanied by payment of the total amount of tax assessed or security

for such amount, in a form acceptable to the [VAT] comptroller at the time the assessment is lodged”.

Sandals Emerald Bay had offered to pay the $30.844m via a “letter of guarantee” from its bankers, CIBC Caribbean (Bahamas), which would serve as security for the disputed tax debt. This, though, was allegedly rejected by the Ministry of Finance and Department of Inland Revenue which continued to demand a cash bond.

The resort chain alleged that Mr Wilson, Mrs Strachan and Patricia Jackson, the Department of Inland Revenue’s in-house attorney, advised during a December 22, 2023, conference call that the bank guarantee would only be accepted if Sandals and its Emerald Bay operator agreed that the disputed sum was owing and moved to negotiate a settlement “in good faith”.

However, if the resort proceeded with the Tax Appeal Commission action, then a cash bond would be required. This position was branded as “unreasonable” and “punitive” by Michelle Pindling-Sands, the Graham, Thompson & Company attorney representing Sandals Emerald Bay, in a December 19, 2023, e-mail reply to Mr Wilson, Mrs Strachan and other tax officials.

Donna Delva, a Clearview Management director, asserted that the $30.844m sum demanded by the Department of Inland Revenue was equal to “almost 90 percent” of the Exuma resort’s “package revenue” as disclosed in its 2022 financial statements. Mandating a cash bond would “have a material impact” on Emerald Bay’s “ability to meet its operating expenses and other financial obligations”.

Supreme Court justice, Denise Lewis-Johnson, in a January 12, 2024, Order imposed a “stay” or injunction barring the Ministry of Finance and Department of Inland Revenue’s demand for a cash payment while giving Sandals Emerald Bay permission to proceed with its Judicial Review challenge. The case is still before the Supreme Court.

The Department of Inland Revenue, in its original July 20, 2023, letter detailing the results of its tax audit, asserted that the consequences of paying the $30.844m in alleged tax arrears were “not material” for a company of Sandals’ size. It pointed to gross annual revenues of $4bn generated by the parent, Sandals Resorts International 2000.

“The resort under audit [Emerald Bay] alone generates revenue for the corporate group in non-COVID years of approximately $120m annually,” the Department of Inland Revenue said. “Sandals Resorts International 2000 has 17 Sandals resorts, two Beaches resorts, Fowl Cay and Your Jamaican villas.

“If all resorts generated similar revenue the total revenue for the corporate group would be $2.5bn per year. The unreported VAT for the audit period is $29m. The penalty represents 2 percent of the VAT owing.” This analysis, though, was rejected by Ms John and Sandals.

“The financial consequences for Clearview Management are material,” she wrote. “Whilst it is part of the Sandals Resorts International 2000 group it is not relevant to consider what the potential size of the Sandals Resorts International 2000 group is because any VAT owing would have to be settled by Clearview Management.

“The proposed audit adjustment of $31m represents nearly 90 percent of Clearview Management’s package revenues reported in Clearview Management’s 2022 financial statements and, as a loss-making company with negative retained earnings at June 30, 2022, such an adjustment would have a material impact on the future of Clearview Management.”

The Sandals Emerald Bay tax dispute has emerged amid an aggressive crackdown by the Ministry of Finance/Department of Inland Revenue via audits and other measures to ensure the private sector is paying its fair share and all sums due to the Public Treasury are remitted.

While most would back increased enforcement and compliance, the Government’s determination to extract all that is owing by existing businesses is thought to at least be partially driven by its eagerness for revenue amid the ongoing fiscal crisis coupled with a desire to avoid imposing new and/or increased taxes.

Philip Davis KC, in closing the 2024-2025 Budget debate in the House of Assembly, said: “There are special interests out there who pay their mouthpieces a lot of money to push narratives about us that do not reflect reality.

“They pretend there are new taxes when, really, they are unhappy that businesses are simply being asked to comply with the law, and pay what they owe, same as everyone else. This is a basic principle of fairness.... We are building a foundation for a more inclusive and fair society where everyone truly pays their fair share.”