Bahamas defends introduction of tax legislation aimed at multinational corporations

NASSAU, Bahamas (CMC) – Prime Minister Phillip Davis says the Domestic Minimum Top-up Tax Bill is intended to generate revenues of up to US$140 million that could be used to support the country’s transformative, people-focused agenda.

He told Parliament that the legislation, which is the first-ever corporate income tax introduced in The Bahamas, will raise revenues without negatively impacting Bahamian businesses in this country.

“For those listening intently who are not sure what this new tax is all about, the first thing you should know is the Domestic Minimum Top-up Tax applies only to multinational corporations operating in The Bahamas that earn over 750 Million Euros (One Euro=US$1.29 cents) per year.

“If you do not own a multinational entity making 750 million Euros per year or more, which is the equivalent of US$800 million per year or more, this tax does not apply to you,” Davis told legislators, adding that he wanted to make that clear as he sought to dispel suggestion that his administration is implementing a new tax.

Davis said that his administration has pledged not to introduce any major new taxes to place a further burden on the Bahamian people, reiterating that he wanted to provide clarity on the purpose of the legislation “because there are those who would use the mere mention of the word, tax, to sow seeds of confusion and spread fake news”.

Davis said over the past three years, the vast majority of Bahamians have experienced lower taxes including customs duties on a wide range of healthy and nutritious dietary staples, construction supplies, and a number of essential goods.

In addition, the government has lowered value added tax (VAT) from 12 to 10 per cent, adding “our main method to generate increased revenues has been improved enforcement and collection”.

Prime Minister Davis said the truth is, the average person doesn’t mind paying taxes as long as they feel empowered, the tax regime is fair, and there are clear results indicating where their tax dollars are going.

“People want to see improvements in areas like education and national security. They want to see new programmes,” he said, adding they want to see improved fiscal responsibility as well as progress toward a balanced budget, “which we are still on target to deliver”.

Davis said the new legislation represents another avenue for generating significant revenues that will be realised without placing a burden on Bahamians.

He said in introducing the tax on multinational entities, “we are taking part in a major global change, as 140 other countries have signed up in agreement with the Organisation for Economic Co-operation and Development on a global minimum corporate ta”.

Davis said the agreement calls for a 15 per cent tax on the turnover of multinationals for the fiscal period beginning January 1, 2024, although some companies may apply for an extension until 2025, if they are newly impacted by this tax.

“The 15 per cent is actually a reference to the total effective tax rate, which requires corporations that don’t currently have a total 15 per cent tax rate to “top up” with this tax to meet the 15 per cent mark.”

Prime Minister Davis said the OECD has pushed for this global movement as a part of its efforts to prevent corporations from moving to low-tax jurisdictions while making most of their revenues elsewhere.

“The OECD argues that this change will produce a more fair global tax regime, because it opens the door for hundreds of billions in revenues for jurisdictions in which these corporations are based.”

But said there are there are some concerns about the fairness of these universal standards and as the discussion evolves, The Bahamas is very present and active in shaping the dialogue.

“We’ve already helped to ensure that the UN plays a bigger role in shaping global taxation and transparency efforts,” Davis said, adding that the Attorney General, L. Ryan Pinder, sits on the UN Committee charged with ensuring the fair application of standards.

“This underscores the importance of our international advocacy. If we weren’t present to boldly state our perspectives on these issues, we would not have the opportunity to actively shape conversations today. Our advocacy could not have come at a better time. ”

Prime Minister Davis said that the Global Minimum Top-Up Tax is part of a wider slate of reforms, referred to as the Global Anti-Base Erosion Model Rules (or GLoBE rules), to prevent practices like profit shifting and end the perpetual “race to the bottom” to lower corporate tax rates in many jurisdictions, which ultimately benefits multinationals more than the countries they are based in.

“This is the most comprehensive global undertaking of its kind ever attempted, and it is expected that more standards will be introduced. Thanks to the efforts of this administration, we will be present in the room when key decisions are being made and new standards are being crafted and debated.”

Davis said that in the meantime, the government has made the decision to introduce the Domestic Minimum Top-Up Tax for several key reasons, including as a matter of fairness, given the high levels of revenue generated by these multinationals, it seems appropriate that the Bahamian people would benefit.

He said the US$140 million in projected government revenues will go a long way toward further strengthening the government’s fiscal situation and funding key programmes to empower and support Bahamians.

“In fact, if we refuse to implement a Domestic Minimum Top-Up Tax, the annual turnover of these multinational entities in The Bahamas would eventually be taxed by other Jurisdictions.

This would rob us of the opportunity for our people to benefit from the presence of these corporations,” Prime Minister Davis said, adding “this Bill ensures that we capture this important source of revenue”.