Dr Trevor Carmichael considers how Barbados has matured as an international finance centre and examines how the jurisdiction has responded to the OECD policy on IFCs and ‘harmful tax practices’.
Barbados as a low tax jurisdiction has traditionally never acknowledged itself to be part of the uncooperative tax havens as listed by the OECD over the past 10 years in its primary and revised lists. For despite random listing and delisting, the jurisdiction has always been one of transparency and low taxation in much of its international business sector. It has relied on a policy of propelling growth through the rapid extension of its double tax treaty network. Indeed, the presence of such a network allows for international tax structuring which results in some cases in tax deferral and low tax payments but which clearly discourages tax evasion.
Furthermore, its treaties contain the standard exchange of information provisions; and while such exchanges may never be fishing expeditions as long established in law, they do provide for the routine exchanges. Moreover, from as early as 1986, the jurisdiction had signed a Tax Information Exchange Agreement with the United States of America as part of the Caribbean Basin Initiative.
OECD - Harmful Tax Practices
Following the report in 1998 (‘Harmful Tax Competition An Emerging Global Issue’) the OECD (Organisation for Economic Cooperation and Development) created a special forum, ‘Forum on Harmful Tax Practices’. To end harmful tax practices, the work of the Forum has focused on three areas: harmful tax practices in member countries; tax havens; and involving non-OECD economies. The Forum has produced progress reports. Furthermore, together with supposedly cooperative tax havens the Forum has produced a ‘Model Tax Agreement on Exchange of Information on Tax Matters’.
In the absence of a definition of harmful tax competition, the OECD 1998 Report distinguishes between tax havens and harmful preferential tax regimes in otherwise high tax jurisdictions. According to the Report, the problem of harmful tax competition starts with no taxation or a low rate of taxation.
The Report concentrates on four key factors in identifying tax havens: no or only nominal taxes; lack of effective exchange of information; lack of transparency; and no substantial activities. Four key factors also identify harmful preferential tax regimes in otherwise high tax countries: no or low effective tax rates; ‘ring fencing’ of regimes; lack of transparency; and lack of effective exchange of information.
At present, the initiative concentrates only on making countries pledge to engage in transparency and effective exchange of information. At one point the OECD listed Barbados as a tax haven, but then removed Barbados.
Endorsing the Ongoing Dialogue
Although not a party to the first Tax and Crime Conference hosted on 21 to 23 March
2011 by the Norwegian government, Barbados policies are, however, consistent with the spirit and aims of the conference. For this important conference aimed to find more effective ways to counter financial crime, tax evasion, and other illicit flows through more efficient international and interagency cooperation.
The conference agreed that the OECD, working with other international organisations and interacted parties, will adopt the following:
Barbados’ Response: Strengthening Policies
Within this current mileu, Barbados' response is yet again one of reviewing its own internal processes, bearing in mind that investors look at substance and not form; they look to see what the jurisdiction has to offer in a macro sense and how the micro facilitating processes work within the jurisdiction. The jurisdiction therefore continues to consider the developing of investment and trade in services agreements on sub service sectors such as tourism and culture. For, in addition to serving as potential alternatives to Double Tax Agreements, such agreements can be useful to the development of services by themselves.
Furthermore, the dynamic nature of the international enforcement initiative, globalisation, free trade agreements, the information industry and other developments have caused Barbados to retool its ongoing international strategies. In this regard, the decision to host a regional centre for arbitration is proving to be an important strategy in a growing services area.
Barbados is also rethinking its role as a regional centre for philanthropy and has buttressed its own non profit and charity legislation.
Barbados has always philosophically accepted that a self managed entity is a critical part of a successful captive insurance paradigm. Energy Insurance Mutual, the Swiss Re affiliates and the various Canadian banks' insurance management structures, in this regard, represent true exemplars. The jurisdiction now houses more self managed captives than any other domicile with approximately 22 such entities; it is a recognition that increasingly such structures allow for cost savings, effective parental quality control and group cost savings. Due regulatory recognition of this type of structure continues and gives respect to a form of organisation now growing more popular globally, but which has deep roots within the Barbadian insurance infrastructure. Nine self managed entities are from captive domiciles within OECD countries while 10 are from outside. The numbers tell the story.
Furthermore, within the 10 captive domiciles, Barbados ranks seventh. With approximately 242 on the Barbados books, it ranks ahead in numbers of the OECD homes of Utah 188 and Hawaii 168. However, in terms of premiums, Barbados does not number within the top 10 which comprises the OCED's Vermont, Luxembourg, South Carolina, Ireland and Hawaii. Nor does it rank in the top 10 within the category of assets under management with the leader being the OECD's Vermont (US$134,400 million), Ireland (US$7,500) and Hawaii (US$7,273).
Numbers do not always tell the whole story, yet there are useful indicators on which to build and frame ongoing and future policy which the OECD by its own presence will find difficulty in attacking. Although it may be difficult to build up an asset management niche overnight and house those vast insurance related assets, the proposed international trading floor will also add significantly to the overall financial diversification and versatility of the jurisdiction as a buttress to the hollow and vacuous OECD reports of many pages.
Barbados' defensive OECD policy therefore rests in a belief in itself and in its potential for self sustaining growth based on a continued policy of transparency. Its international financial services sector is mature, fuelled by double tax treaties, bilateral investment treaties, international insurance, international banking as well as the other growing service sector areas.
It seeks not to be defensive in relation to the OECD since its historic transparency and good governance allows it to work safely and successfully in enabling its own future.
Sir Trevor Carmichael QC
Sir Trevor Carmichael, KA,LVO,QC. was born in Barbados and educated at Harrison College and the University of the West Indies, Mona, Jamaica. After pursuing post graduate studies in the United States, he was called to the United Kingdom Bar as a member of the Middle Temple in London and the Barbados Bar in December of 1977. He is a member of the International Bar Association, the Inter-American Bar Association and a Committee Member of the Inter-American Bar Foundation as well as an associate member of the Canadian Bar Association. He holds membership in the International Tax Planning Association, the International Fiscal Association and was one of the parties responsible for establishing a Barbados Chapter of the International Fiscal Association of which he is Charter President. He is the Barbados Country Chairman of the International Litigation Committee on Business Law of the International Bar Association and a former Deputy Secretary General of the International Bar Association. He is a Life Fellow of the Institute for Advanced Legal Studies in the United Kingdom, a Life Member of the Commonwealth Magistrates and Judges Association and a member of the International Law Association.