Gov’t battling for $13m VAT on cruise ship sale

This newspaper can reveal that legal arguments were made last week on both the Government and DNB Bank’s behalf before Justice Andrew Forbes, who is now considering his verdict. Mr Wilson yesterday voiced confidence that the Ministry of Finance and Department of Inland Revenue will prevail, arguing that all the elements to make it a taxable transaction are in play.

“There’s no dispute. The law is clear. That transaction is VAT-able,” the financial secretary told this newspaper. “I don’t think there’s any contest. There’s no basis to contest it. That transaction is VAT-able. That transaction was structured as a transaction by a Bahamian entity to a next Bahamian entity. That is clearly a VAT-able transaction, and it happened in this jurisdiction.

“It’s clearly VAT-able. There’s no reason for dispute. That’s clearly a VAT-able transaction. It was a transaction involving a sale.” Mr Wilson said he did not know the combined purchase price fetched by the two Crystal Cruises vessels, or the precise amount of VAT that could be generated, but added: “I heard it was a lot. It’s definitely a VAT-able transaction.”

A Bahamian legal source, speaking on condition of anonymity, confirmed that there was an “issue arising from the sale of the ships” that was heard by Justice Forbes in Freeport last week. “There’s a big VAT claim that the Government is asserting for VAT on the sale of the ships by the bank,” they added. “That’s a big VAT claim. The bank are disputing it; that obviously takes down, and reduces, their take home pay. The judge reserved his decision.”

Tribune Business last year reported that the Crystal Serenity and Crystal Symphony’s were sold by DNB Bank, acting as their secured financier and mortgage holder, for $103m and $25m respectively. These valuations have both been confirmed by a subsequent Supreme Court judgment.

The Crystal Serenity was bought by a company called CSE Ltd, and the Crystal Symphony by an entity named CSY Ltd. Both CSE Ltd and CSY Ltd were likely special purpose vehicles (SPVs) or entities specifically created to acquire, and hold, the two now-former

Crystal Cruises vessels, with CSE standing for “Crystal Serenity” and CSY for “Crystal Symphony”.

One maritime industry professional, speaking on condition of anonymity, while agreeing that the Government may be entitled to VAT also voiced alarm that levying the tax on a vessel’s sale could harm The Bahamas’ ambitions to develop itself into a true maritime hub.

They pointed out that transactions involving the sale of high-end yachts and other vessels were frequently conducted in The Bahamas because of its perceived friendly taxation regime - an image that could be impacted if VAT is levied at the full rate on the Crystal Cruises sale.

“If they start doing this, this idea of creating a maritime hub, they’re going to drive all ship sales away,” the source said. “People come here, fly in from around the world, to do yacht and vessel closings in The Bahamas because The Bahamas has a favourable tax regime for the sale of yachts and vessels.

“They’re going to drive that away if they make that a policy. It will crush maritime sales. I get why they’re doing what they’re doing.