By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government will “proceed” with implementing The Bahamas’ own 15 percent corporate income tax and is not worried “at this point” that the move will place this nation at a competitive disadvantage.  

Ryan Pinder KC, the attorney general, in response to messaged Tribune Business inquiries told this newspaper yesterday that the Davis administration has no plans to review the Domestic Minimum Top-Up Tax (DMTT) in response to Donald Trump pulling the US out of the very same initiative that drove The Bahamas to make this tax reform.

“The Bahamas is not going to review its commitment to DMTT as a result of the pronouncement by the Trump administration,” Mr Pinder asserted. “We have international obligations to implement. Our plan is to proceed with the implementation of the DMTT regime passed by Parliament.

“We do not have any concerns at this point that the pronouncement by the Trump administration puts The Bahamas in any competitive disadvantaged situation.” The Attorney General added that the new US president’s move will also have no consequences for the push by The Bahamas and other states for the United Nations (UN) to take over the development and implementation of global tax rules.

“We don’t see the position by the Trump administration having any implication on the UN process,” Mr Pinder said. “That process stands on its own and still represents the position that there should be fairness and equity in the approach to global taxation, and all countries should be at the table in formulating global tax reform and regulation.”

However, those connected to the financial services industry and other observers yesterday warned that the perceived benefits from the newly-introduced 15 percent corporate income tax - to only be levied at present on Bahamian-domiciled entities that are part of multinational groups enjoying 750m euros or more in annual turnover - could be “severely diluted” depending on the extent of the fall-out from Mr Trump’s move.

The newly-elected US president’s order, declaring that the 15 percent global corporate minimum tax deal produced by the G-20 and Organisation for Economic Co-Operation and Development (OECD) “has no force or effect” in the US, effectively reintroduces the concept of international tax competition to global affairs with countries offering different rates in a bid to attract multinational firms and capital.

Tribune Business was told that The Bahamas will need to closely monitor global fall-out, and whether other jurisdictions follow the US lead under Mr Trump, otherwise it could ultimately lose multinational business if its corporate income tax rate remains at 15 percent while others lower theirs. This would produce a potential exodus of corporate business seeking a better return from lower tax rates in other nations.

Should such a scenario occur, the expected $140m annual revenue boost for the Government from implementing the DMTT may also not materialise. Mr Pinder had previously confirmed to this newspaper that Shell’s Bahamian subsidiary, Shell Western Supply & Trading, and its $1.6bn in pre-tax profits would be subject to this nation’s new corporate tax, but Mr Trump has paved the way for it to potentially move to the US.

And other observers suggested that the US abandoning the G-20/OECD initiative will now make it extremely difficult, if not impossible, for The Bahamas to gain taxes on profits generated in this nation by corporate giants that have no physical presence here - the likes of Google, Netflix.

Kevin Moree, attorney and partner at the McKinney, Bancroft & Hughes law firm, told Tribune Business the Trump administration’s move threatens to erode The Bahamas’ potential tax earnings from implementing the corporate income tax. He described as one of the “main factors” that seemingly drove its introduction here, and added that multinational entities will now likely be “crunching the numbers” after the US action.

“I think the concern is the US becoming the jurisdiction of choice for those types of multinationals that otherwise would be caught up in the global corporate minimum tax,” the former Bahamas Financial Services Board (BFSB) chairman said.

“They’ll be crunching the numbers. If I stay in The Bahamas I have my 15 percent, and they will calculate that if I go to the US and it’s, say, 10 percent or whatever and include that with other tax stuff.... They will make a commercial calculation.”

Mr Moree added a “caveat” by saying such decisions would not just involve comparing Bahamian and US corporate tax rates as the latter nation has a whole myriad of other taxes, fees and levies that companies must account for. However, he reiterated: “If I was a multinational I would certainly be going to the drawing board and crunching the numbers to see if it was worthwhile” to switch to the US or elsewhere.

“The potential implication is that it was around $140m that the Government had hoped to get from this new tax, and that will be a problem if these multinational entities decide to change jurisdiction. We won’t be getting those tax dollars,” Mr Moree told Tribune Business. 

“That seemed to be one of the main factors in going along with this. The benefits could be severely diluted if they [multinationals] decide to move to the US and other jurisdictions as opposed to us.” And, while Mr Trump and the US have no fear of suffering any consequences for abandoning the global corporate tax initiative, Mr Moree said The Bahamas remains exposed and vulnerable to OECD ‘blacklistings’.

Besides “the dollars that the Government hoped to get from them going somewhere else”, the McKinney, Bancroft & Hughes partner said any exodus of international business would also harm the Bahamian professionals that service them such as attorneys, accountants and corporate service providers through loss of fee income.

“I really think the devil is in the details when these multinational entities crunch the numbers and work out what their effective tax rate is taking into account all the other stuff they have to deal with in the US,” Mr Moree added. He added that multinationals would compare the likely tax savings generated over a 15-20 year period, and some may elect not to move believing US tax policy will change when Trump leaves office.

Another observer, speaking on condition of anonymity, argued that the new US president has “thrown a little bit of a monkey wrench” into a global minimum corporate tax to which some 140 countries have signed up to. They added that the initiative relies on the participation of the US and other “major players to enforce it” and, without the former, it will be impossible to implement and bring into effect.

And, while The Bahamas would still be able to levy the 15 percent corporate tax on multinationals that maintain a physical presence in this nation, the source questioned how it would be able to now tax the profits generated by US entities that “do not have bricks and mortar, or substantial operations” here without the Trump administration’s participation. They pointed, in particular, to the likes of Google, Netflix and Facebook.

“If the Government squeezes them, they could set up in Delaware or some other place,” the source added. “This enterprise only worked if all major players, the European Union (EU) and US, were prepared to enforce it. The question for us, from a fiscal standpoint, is what does this mean if US companies leave.

“The Government has placed great stock in this additional 1 percent of GDP to revenue, another $140m, especially with the massive deficit they’ve run up over the last several months.” The IMF, in its latest Article IV report on The Bahamas, said: “A 15 percent qualified domestic minimum top-up tax on large multinational corporations that are resident in The Bahamas was passed by Parliament in November.

“The new Act will become effective retroactively from January 2024, with revenues starting to be collected in fiscal year 2025-2026. The tax is expected to generate 1 percent of GDP annually, with a large share expected to accrue from the energy sector.

“Additional legislation is being prepared to lessen disincentives to invest in tangible depreciable assets, by providing accelerated depreciation or refundable tax credits, and to bring offshore indirect transfers of Bahamian property into the tax net.”

Mr Trump and the US have walked away from a G-20/OECD initiative that was designed to create a ‘one size fits all’ or across-the-board global tax rate, and prevent a ‘race to the bottom’ on corporate taxation rates, by ensuring multinational earnings are taxed where they are generated and not switched to lower-tax jurisdictions via techniques such as transfer pricing.