Sandals and the Bahamas at odds over tax payments
Just as Antigua and Barbuda’s Inland Revenue Department (IRD) has raised concerns over Sandals Resort and Spa’s handling of the ABST, seems another Caribbean territory where the luxury resort chain operates, is encountering problems with the collection of taxes from the resort. The following article is a reprint from Tribune Business Editor, Neil Hartnell.
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 misleading 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. 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.
