Bahamas begins final consultation on minimum top-up tax for MNEs

The new top-up tax addresses the impact of global tax reforms on jurisdiction, principally the OECD/G20 Pillar Two global minimum corporation tax for large multinational enterprises (MNEs). This requires all in-scope MNEs to pay a minimum effective tax rate of 15 per cent on profits in each of more than 130 jurisdictions that have signed the agreement, including the Bahamas. It is backed by a treaty-based subject-to-tax rule, which allows a 9 per cent withholding on certain cross-border payments.

The government says the draft legislation is 'a crucial step in protecting our national interests'. It is, it says, a 'necessary interim measure' to ensure that the 15 per cent qualified domestic minimum top-up tax owed by large MNEs is collected domestically rather than abroad. 'Widespread international implementation of Pillar Two means that in-scope MNEs operating in the Bahamas will likely be required to pay to another jurisdiction tax on profits attributable to the Bahamas', said the government.

The domestic minimum top-up tax will thus begin to accrue income starting this year, as the proposed Bill deems it to have come into force on 1 January 2024. It will not apply to businesses with no foreign presence, those with less than EUR750 million in annual turnover, non-profit organisations and certain other exempt entities.

The Bill will be submitted for parliamentary approval on 9 October 2024. In the meantime, the government is continuing to evaluate broader corporate tax reforms. It has previously promised that a wider business income tax would only be proposed after proper consultation, with 'considerable lead time' in order for Bahamian businesses to properly prepare.

'Developing and implementing a [business] income tax system from the ground up is an enormous undertaking', said the government. 'More time is needed to evaluate the merits of establishing such a system and weigh policy options.'

The government also proposes to introduce further details of an incentives programme for MNEs, including qualified refundable tax credits, later in 2024.

Sources

• Bahamas government
• Bahamas government (consultation paper, PDF)
• Bahamas government (draft Bill, PDF)
• PwC (February 2024)
• STEP International News 26 February 2024: Bahamas government announces corporate tax on MNEs, in line with OECD Pillar Two