Barbados' performance in the year 2013 is accurately viewed when one considers that year's economic and financial indicators in a comparative context that embraces previous performances in similar periods of global financial contraction.
Indeed, when one makes a comparison with previous global economic downturns, the Barbados economy has performed better during the current economic recession. Between the start of the current crisis in 2008 and the year 2013, the economy contracted by a total of three per cent. However, in the 1981-82 recession the decline was seven per cent, and in 1990-93 the contraction reached 14 per cent.
Furthermore, the current sluggish international economy and the weak performance of countries where Barbados earns its foreign exchange are unprecedented since World War II. Barbados has therefore lessened the impact of the global recession on its national output and employment as a result of its competitive strengths in the international market, and also because of an effective fiscal policy, which has sustained foreign exchange reserves and protected the value of the Barbados dollar in relation to the US dollar to which it is pegged.
Barbados therefore still ranks highest among Caribbean countries in the 2013-14 Global Competitiveness Report, at number 47 in the world. It outperforms Caribbean and Latin American countries in terms of its infrastructure, institutions, health, education, labour market efficiency, financial market development and technological readiness. It is on the same level as its peers with respect to goods market efficiency, business sophistication and innovation.
The Tax Treaty Theme
Barbados continues to be a jurisdiction committed to an ever-developing series of tax treaties of both the double tax and a bilateral investment variety. For a long time the double tax treaty has served as a means of bringing certainty to the tax treatment of transactions of jurisdictions who are parties to that treaty. It is also the vehicle which establishes and sets out clear administrative procedures, as for example the long-heralded mutual agreement procedure. By allocating in the treaty, taxing rights between the host and capital exporting country, a clear signal is given to both the tax administration and the tax payer as to their respective rights. Indeed potential investors are able to know ab inito, the rules which will be applied in the investment exercise.
Presently over 3,000 such treaties exist among the various global jurisdictions They carry the imprimatur of one international institution and another major economic political trading group in that both OECD and UN models are the two treaty guidelines that are globally followed. Indeed, the latter is to a large extent an outgrowth on the former. The OECD countries, not surprisingly, have been the most active in negotiating and signing tax treaties; most OECD member countries have a network of 50 to 80 treaties.
Barbados, as a small jurisdiction geographically positioned in the Caribbean, has, like OECD countries themselves, enjoyed a penchant for the tax treaty. At the beginning of 2013, it had 32 double taxation agreements in force with the global CARICOM agreement counting as 10 individual agreements. Later in 2013, it added new treaties with Ghana, Bahrain, Qatar and San Marino. With Italy, Belgium, Singapore and the Slovak Republic, it has initialled treaties which currently await signature. As regards bilateral investment treaties, it currently has nine in force, and additionally with Ghana and the Belgian Luxembourg Economic Union (BLEU), it also has two such treaties which are awaiting ratification.
In the area of the Tax Information Exchange Agreements (TIEA), it has for many years been party to such a protocol with the USA, whereby it was eligible for additional benefits, and more recently it has negotiated such an agreement with Denmark. It awaits ratification of TIEAs with Greenland and the Faroe Islands and it has initialled agreements with Germany, France and South Africa, which now await signature.
With such a wide arrange of treaty involvement, Barbados continues to cement its policy commitment to certainty and transparency. It is therefore not surprising that the jurisdiction has avoided the strictures of the Financial Action Task Force (FATF) and its affiliate the Caribbean Financial Action Task Force (CFATF). At the February 2013 Plenary in Paris, the former issued two public documents the first of which identifies: (1) jurisdictions that have strategic AML/CFT (anti-money laundering and counter-financing of terrorism) deficiencies and to which counter-measures apply and (2) jurisdictions with strategic AML/CFT deficiencies that have not made sufficient progress in addressing the deficiencies or have not committed to an action plan developed with the FATF to address the deficiencies. The second public document identifies jurisdictions with strategic AML/CFT deficiencies. Barbados, with its well-developed AML programmes and its treaty tradition, easily avoids being identified with those jurisdictions to which the warning words are directed.
A Proven Infrastructure
Barbados' historical strength as a well governed and regulated jurisdiction continues to act as both shield and sword. In the 2013 Global Innovation Index, it is ranked third in the Caribbean and Latin America with only Chile and Costa Rica slightly ahead in innovation. More specifically, Barbados ranked first in the world in the number of international patents filed by residents - a feature which complements its very high ranking on the sums spent on education, the length of time by students in schools, tertiary enrolment, information and communications technology access and use, research collaboration between the university and business and foreign direct investment net inflows and outflows.
In the annual 2013/2014 report of the World Economic Form (WEF) Barbados' educational system received similar commendation. The report placed it as number six in the world, which was an improvement from the previous year's position of 11th . The words of the WEF are instructive noting that Barbados "continues to benefit from a fairly skilled labour force thanks to a high-quality educational system and high enrolment rates in secondary and tertiary education, well functioning institutions and a solid infrastructure”.
The Way Forward
Barbados looks towards a future with major investment projects planned by both the private sector and the Barbados government. It expects to see growth again in 2015 of about 1.5 per cent followed by two per cent to three per cent thereafter. Private sector investment over the next three years are likely to be in the region of US$1 billion and public sector involvement over the period in foreign exchange related projects are estimated in the region of US$400 million. The international business environment is poised to exploit even further, the tax treaty benefits of sound utilisation, and the new focus on the use of alternative energy synergies. It is expected to be both shield and sword. Consistency and control is the message of the moment.
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.