By Gerrino J. Saunders

Journal Staff Writer

As The Bahamas moves to reform its tax system to survive in the global financial

system, new laws were passed this week in the lower chamber of parliament. It comes

from advice of key international organizations like the Inter-American Development

Bank and should, at least for the meantime, satisfy other big financial entities like the

Organization for Economic Development (OECD).

The new tax will apply only to foreign entities in The Bahamas whose earnings

exceed $800 million annually.

The opposition agreed with the government’s move to implement the Domestic

Minimum Top-up Tax Bill, 2024 (Top-up Tax) (DMTT) which is projected to

generate revenues of up to $140 million annually.

Prime Minister Philip Davis speaking directly to the merits of the bill in its second

reading in the House of Assembly described it as being “transformative” and one that

will assist the government in carrying out its “people-focused” agenda.

The Top-up Tax is the first-ever corporate income tax introduced in The Bahamas and

is expected to raise government revenues without negatively impacting Bahamian

businesses.

Reassuring Bahamians that they will not be subjected to the provisions of this new

tax, the prime minister said, “for those 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 per year (USD 800 million). If you do not own a multinational entity making

750 million Euros per year or more, which is the equivalent of $800 million per year

or more, this tax does not apply to you. I wanted to make that clear to those who may

have heard that the government was implementing a new tax but did not know who

would be impacted.”

Mr. Davis reminded that his administration has pledged not to introduce any major

new taxes to place a further burden on the Bahamian people, noting that his

administration has reduced taxes on a wide range of items over the past three years

including on food and construction items as well as real property tax where the

threshold to pay was increased from $250,000 to $300,000 tax free.

He said Top-up Tax Bill represents another avenue for generating significant revenues

that will be realised without placing a burden on Bahamians.

He explained, “in introducing this 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 (OECD) on a global

minimum corporate tax.”

“The agreement calls for a 15% tax on the turnover of multinationals for the fiscal

period beginning 1 January 2024 – although some companies may apply for an

extension until 2025 if they are newly impacted by this tax.

“The 15% is actually a reference to the total effective tax rate, which requires

corporations that don’t currently have a total 15% tax rate to “top up” with this tax to

meet the 15% mark,” Mr. Davis explained.

He 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.

Mr. Davis said, “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. Of course, there are some concerns about the

fairness of these universal standards. As this discussion evolves, The Bahamas is very

present and active in shaping the dialogue.” 

The Prime Minister reminded members of the House that the government has already

helped to ensure that the United Nations (UN) plays a bigger role in shaping global

taxation and transparency efforts.

He noted Attorney General Ryan Pinder sits on the UN committee charged with

ensuring the fair application of standards. 

He said, “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.” 

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.

Mr. Davis described the initiative as “the most comprehensive global undertaking of

its kind ever attempted”.

He said it is expected that more standards will be introduced thanks to the efforts of

his administration as they will be present in the room when key decisions are being

made and new standards are being crafted and debated.

The prime minister said his administration made the decision to introduce the

Domestic Minimum Top-Up Tax for several key reasons.

He said, “first of all, as a matter of fairness, given the high levels of revenue generated

by these multinationals, it seems appropriate that the Bahamian people would benefit.

The $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.”

“This Bill ensures that we capture this important source of revenue. We must also

ensure that The Bahamas, as a leading financial services jurisdiction, remains fully

compliant with global standards. This is critical because investors want to do business

in compliant jurisdictions,” said the Prime Minister.  

According to Prime Minister Davis the Top-up Tax Bill was also developed to bring

The Bahamas into full compliance with international financial laws.

He said, “we have demonstrated time and time again the seriousness with which we

pursue compliance. It will never be said that The Bahamas does not make every effort

possible to remain fully compliant. Earlier this year, we were removed from the EU’s

blacklist of non-cooperative tax havens after we corrected the mess left behind by the

previous administration in rolling out a proper economic substance reporting portal

and process that met international standards.”

Mr. Davis said the government must now be proactive in ensuring that The Bahamas

remains off of any additional blacklists. 

He said, “compliance is a key cornerstone of our financial services industry that we

are keen to maintain. After a lengthy public consultation process, it is clear that

industry observers support our approach and have agreed with our determination that

the introduction of this tax will not have a negative impact on our financial services

industry, especially given the fact that it is a uniform global standard. We shall remain

competitive.”

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Mr. Davis said public consultation has been critical throughout the process and that all

stakeholders have been deeply involved in giving direct feedback, analysing the

impact of the changes, and ensuring that the government has a strong draft

legislation. 

Prime Minister Davis said his administration also wanted to make it clear that its

intentions were in adhering to the OECD’s standards by forecasting a target tax rate

which aligns with the global minimum. 

He said, “we’ve also made it clear that there will be no further domestic income tax

policy changes made that will have a foreseeable impact on affected corporations.”

Additionally, he said multinational corporations have been equipped with the

information they need to facilitate a smooth transition to comply with the new law

which requires changes to company accounting and tax management processes that

may require resource and manpower additions.

He said as a result of the government being proactive in its approach it has give those

companies the time they need and will also give the government time to prepare for

this major change. 

In conclusion Prime Minister Davis acknowledged that the Top-up Tax Bill is a

“significant” legislative and regulatory reform that will require “unprecedented”

monitoring and tax administration capabilities.

He noted, “There are a number of changes that must be made systemically. We don’t

have a history of an income tax of this kind. It is a steep departure from the business

licence fees we typically charge.  It requires taking into account a wide array of

information like specific expense types that we do not currently apply our tax

administration and monitoring efforts toward.”

According to the Prime Minister significant capacity building is taking place within

the government as it moves forward with its agenda.