Oren Cass, in the now popular, The Once and Future Worker, puts forward several radical, and widely-praised theories in what he terms his ‘Working Hypothesis’. This hypothesis seeks to harness the worker and proposes to put the creation of conditions for productive and engaging work at the centre of public policy; however, while Cass’s thesis primarily concerns the working American, the principals he puts forward may be equally applied to the economy, and society as a whole.
He cites five pertinent areas in his analysis of what drives prosperity: environmental regulation and its effect on the kind of labour the economy demands; education and its effect on the kind of labour which workers can provide; trade and immigration, and their effects on who produces and consumes in the market; organised labour and its effect on how agreements are made in the marketplace; and taxes and subsidies, and their effect on the jobs which are created and the quantum of wages. During the latter half of 2018, a restructuring of the Barbados economy was begun, such that Cass's tenets may be seen as the bedrock of proposals which, in the last nine months, have been promulgated, and in some cases, proposed.
With the launch of the Barbados Economic Recovery and Transformation Plan (BERT), an extraordinary, and sizeable, economic adjustment is currently taking place. It encompasses an effort to halt and reverse a six-year decline in national reserves, which has been so effective that, in six months, they have increased from Bds$400 million to Bds$1 billion. Gross international reserves at the end of 2018 amounted to a very favourable Bds$1.044 billion; the first time since 2014 that such a figure has been reached. As a result, there is currently a projected saving of approximately Bds$500 million per year. Furthermore, debt levels are on a downward trend; falling from 170 per cent of national income to 134 per cent. The current debt to GDP ratio is now at 123 per cent, with the stated goal being to reduce that to under 100 per cent in the next five years. Indeed, the international credit rating agencies are once again fully supportive and have given the island its first credit upgrade in over fifteen years.
The Ethos of Legislative Reform
Without delving in to the details of the recent European Union's Harmful Tax Initiative, it is nevertheless of value to note the significant legislative changes which Barbados has introduced to comply with these international strictures aimed at small international financial centres.
The International Financial Services Act, Cap. 325 (IFSA) has now been repealed by the Financial Institutions (Amendment) Act, 2018 ("the amended FIA"); a new guideline now applies to licensees previously licensed under that Act and which are transitioning to the Financial Institutions Act, Cap. 324A (FIA). Since 1st January 2019, such licensees are deemed to be licensed under Part IIIB of the amended FIA, as foreign currency earning banks (FCB). The amended FIA provides in Part IIIA for the licensing of financial holding companies. Section 41G of the amended FIA contains the transitional provision for companies that are licensed under Part IIIB and are maintaining the functions of a financial holding company. Licence fees continue to be applied at the current levels until otherwise advised by the Central Bank of Barbados (CBB).
Subsequent to the statutorily permitted transition, there will be a six-month grace period which commences from January 2019 and during which a licensee's status continues uninterrupted. During this time, any legal or regulatory matters emanating from the transition to the amended FIA – such as the need to file amended Articles with the Corporate Affairs and Intellectual Property Office ("CAIPO"), or attend to outstanding filings with the Barbados Revenue Authority or the National Insurance Department, can be completed. The CBB has indicated that it will consider extending the grace period in extenuating circumstances, but it reserves the right to recommend that the licence be suspended where a licensee fails to attend to any legal or regulatory matters within the grace period.
In cases where it is necessary to make an amendment to the Articles of Incorporation of an IFSA licensee transitioning to the amended FIA, authority for approval regarding amendments to the Articles of Incorporation has been delegated to the CBB under the amended FIA. Section 114 of the amended FIA has been retained in order to provide for any consequential amendments to the Companies Act which may arise from the introduction of the FCB regime. CAIPO and the CBB are expected to collaborate as necessary, to establish and communicate a common regulatory position.
Licensees who are transitioning to the amended FIA, and whose ownership or subsidiary structures include entities licensed under statutes which have been repealed (such as the International Business Companies (IBC) Act), must notify the CBB of any proposed group reorganisations within 90 days of the issuance of the January 2019 Guideline. This notification seeks to facilitate the identification of changes in group organisation or holdings which would deviate from what was previously approved; allow for regulatory review if warranted; and also ensure continued effective consolidated supervision.
Section 35 of the amended FIA contains a saving, or grandfathering, provision for the benefit of licensees. It allows old rules to apply to those entities which opt to be grandfathered. Hence, in spite of the repeal of IFSA, the rights and benefits conferred upon licensees under IFSA are s provided for in the following manner: a licensee holding a valid licence issued prior to October 17, 2017 is entitled to receive the benefits until June 30, 2021; and a licensee holding a valid licence issued on or after October 17, 2017 ceased to be entitled to the benefits after December 31, 2018. Such latter licensees will be subject to the arrangements for transitioning to the amended FIA. Furthermore, any obligation or penalties incurred by a licensee under the IFSA during the period of operation of that Act shall not be affected; and any related investigation, legal proceeding or remedy may be instituted, continued or enforced with penalties imposed as if the IFSA had not been repealed. If a licensee wishes to avail itself of the savings/grandfathering provisions, it must advise the CBB of its intent to be grandfathered as provided in Section 35 of the amended FIA. A grandfathered licensee must also amend its Articles of Incorporation, as applicable, within the 6 months grace period.
Provision is also made for exiting the grandfathered status. In cases where a grandfathered licensee chooses to exit its grandfathered status before 30 June 2021, it must notify the CBB. Upon notification and subsequent confirmation of non-objection by the CBB, the licensee is then deemed to be fully licensed under the amended FIA and the transitioning arrangements shall apply.
There are additional benefits and exemptions. Holders of a foreign currency permit (FCP) are able to benefit from income tax concessions for specially qualified individuals for a period of 3 years, and are exempted from the following regulations: exchange control; withholding tax on payment of dividends to non-residents; withholding tax on all other payments to non-residents; payment of stamp duty; and property transfer tax (save and except real estate), other than the nominal duty of Bds$200.00 on all instruments, agreements and payment of value added tax and duties, on the importation of plant and machinery. To apply for the FCP permit, a licensee must generate 100 per cent of its income in foreign currency. An application for an FCP, together with the relevant fees, should be made to the International Business Unit.
There are similar legislative changes in connection with international business companies, exempt insurance companies and international business legislation generally. Equally, Barbados is silently, but aggressively, reordering the processes of its regulatory agencies, in order to give full force and effect to the sweeping legislative changes. While these changes may not match the Oren Cass thesis overall, it cannot be denied that they, nevertheless, boldly aspire to something close to parity with that comprehensive social and economic analysis.
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.