Business

Tax concessions still a big draw

Where JFK, Ronald Reagan and Trump differ from Gaston Browne

Wednesday, January 10, 2018

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Tax concessions, though frowned upon by some short-sighted leaders, continue to be an irresistible incentive to investors to park additional funds in an economy, especially in places where size makes it difficult to ensure meaningful return on investment — such as the Caribbean.

Anti-concession governments usually argue that tax concessions rob their treasury of needed money. Investors counter that without the incentive to invest, no additional money would go into the treasury, and it is a mirage to speak of revenue being lost when there was none in the first place.

The latest Government to put its faith in tax concessions is the United States Administration. On December 22, 2017, President Donald Trump signed the Tax Cuts and Jobs Act into law, drastically reducing the permanent corporate tax rate from 35 per cent to 21 per cent beginning this year.

Before Trump, other US presidents — including John F Kennedy, Ronald Reagan and George Bush — cut the corporate tax rates, with the common premise being that they would provide powerful incentives to companies to invest more and grow the economy, thus providing more jobs and revenue for state coffers.

It is commonplace in the US to see individual states aggressively going after foreign investment. And they are not shy about offering concessions to lure investors, because they are aware that the taxes they give up initially will be returned in greater numbers when people are employed.

An outstanding example is the fierce battle waged by almost 24 states in America for Boeing's 777X aircraft assembly plant. Washington state was eventually successful in keeping the plant, after approving nearly US$9 billion in tax breaks for Boeing.

Washington state officials were reported as saying that keeping the 777X plant there would result in US$21.3 billion in tax revenue for 15 years, based on a total of approximately 57,000 jobs.

In trying to woo Boeing, the Missouri legislature approved a US$1.7-billion incentive package that would have remained in effect for more than 20 years and created 2,000 new jobs.

The state of New Jersey offered Forbes Media, publisher of the respected Forbes Magazine, US$27.1 million in tax incentives over 10 years to move 350 jobs from New York. The New Jersey Economic Development Authority estimated that Forbes' move would result in a net estimated benefit to the state of US$72 million over 20 years.

For its part, New York launched what it described as a multifaceted programme to attract jobs and business start-ups by dangling a corporate tax-cut carrot as well as a 10-year tax exemption to businesses that located in certain areas there.

American investors must be wondering what is happening in the Caribbean, specifically in Antigua and Barbuda, where its Prime Minister Gaston Browne is inveighing against tax concessions, particularly in the tourism sector.

“The hoteliers, they are brutal in their requirements, they ask for up to 25 years' concession on everything. They don't want to pay no taxes. When their tax (exemptions) run out they come back and they insist you must renew it.

“And when you decide you don't want to do it because you are trying to protect Government's revenue, they hold you hostage to fortune,” Browne said last year after he unilaterally rescinded a legally binding concession agreement between the Sandals Resorts chain and the Government of Antigua and Barbuda.

In fact, senior lawyers from both the Caribbean and the United Kingdom attest that the host country agreement between Antigua and Sandals was perfectly legal and binding and in conformity with the requisite laws, including the doctrine of legitimate expectation.

Sandals, already Antigua's largest investor, had agreed to build an additional 100 rooms on the Sandals Grande Antigua hotel, as part of a US$100-million investment, in exchange for a 25-year concession on some taxes. For good measure, the hotel built an additional 80 rooms.

Browne has suggested that under that agreement, Sandals had not paid over EC$101 million in Antigua and Barbuda sales tax, which he said should have come from guests brought in by the hotel. But unable to show any illegality, his Government decided to “write off” the amount.

His unilateral action, however, has backfired, as none of the investment memoranda of understanding (MOUs) he had signed since 2014 have come to fruition — a sign that investors, including American actor Robert DeNiro, have become wary of ploughing funds into Antigua.

But even at that, Browne has sent confusing signals and shown no true conviction against concessions, as he offered a company called YIDA — whose principals are not known — lifetime concessions without taxes, raising consternation in Antigua and beyond.

Some Antiguans have suggested that investors are also waiting for the prime minister to clear the air after accusations that he had received three million euros from Brazilian construction firm Odebrecht, which has been alleged to bribe numerous heads of government in Latin America to cover up or facilitate money laundering activities.

Browne strenuously denied the allegations, later saying that he had been exonerated after a private arrangement with the newspaper El Pais, which he had sued for defamation for carrying the original story quoting a former Odebrecht lawyer.

He has so far failed to provide proof of his exoneration, despite numerous calls from Antiguan media outlets, which he has instead attacked for being “unpatriotic”.

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