Like the rest of the world, business in Barbados has not been immune from the vicissitudes of the global economic recession. As an open economy largely dependent on cross-border trade in goods; investment flows into and through the country and opportunities for the export of services using all four modes of supply, world events – political, social and economic, all resonate in Barbados, albeit to a greater or lesser extent.
This has been a longstanding reality of Barbados’ business environment such that both the private and public sectors have developed coping mechanisms to offset the challenges that such externalities throw up. Of course recessionary times affect businesses in different ways and to the extent that they have been “winners” and “losers” Barbados has benefitted from that dichotomy especially within the international business and financial services sector.
Moreover, given the hardy nature of the businesses that find Barbados an attractive domicile for business we have found that instead of the dramatic fall-off in new business predicted by some, the magnitude of contraction has not caused undue concern except insofar as there would be serious implications if the recession was to be sustained. While the region will have to play ‘catch up”, signs are that the recession in the ‘onshore’ states is being to recede, except for pockets where ‘double dips’ are feared.
With a population size of just under a quarter of a million people and a physical landmass of 166 square miles we are rightly concerned with businesses of substance. Indeed, it is perhaps the diversity of the types of businesses that find Barbados relevant to their global strategies that has resulted in Barbados not being well known for one type of business endeavour over another. It is quite true to say that we support an eclectic mix of business and commerce. Moreover, aside from its constituency of entities licenses under the suite of laws that defines the international business and financial services sector Barbados has a vibrant, well established domestic sector.
Both sectors boast local, regional and international investment and act as mutually reinforcing pillars of Barbados’ economy. Perhaps the one aspect of this country’s institutional arrangements which allows for the designation of our “business climate” as, to use a well known phrase in this part of the world – “fair to partly cloudy” – is the existence of our Public-Private Sector Partnership (PPP). The PPP is not just a collective “state of mind” but supported by a number of Protocols which have been a feature of the political economy of Barbados for over two decades.
Since the first agreement was signed in the early 1990s this model has been pressed into action when economic crisis has loomed. This is not to say that in times of boon this alliance lays dormant. Indeed it is precisely the existence of the agreed fundamentals of job security, social care and support for businesses during depressed profitability that has enabled the crafting of joint responses in times of economic turbulence.
With the knowledge of the source of the current financial crisis, its impact on international and domestic business and the proposed prescriptions for remedial action by the G20, Barbados remains realistic about the current state of play. Our pragmatism coupled with a quiet optimism about future growth prospects is largely a function of our institutionalised collective action that has been tried and tested.
Corporate tax in Barbados is levied at 25 per cent which in the context of modern trending towards near single digit rates, is not in the range of the lower percentiles. However, like many onshore and offshore countries Barbados does provide opportunities for the tax efficient structuring and re-organisation of international transactions through a number of legislative vehicles. These include International Business Companies and International Societies with Restricted Liability.
These are taxed at a maximum rate of 2.5 per cent and a minimum rate of 1 per cent. For this reason, in the universe of international business and financial services Barbados is properly characterised as a “low tax” domicile. Indeed, at the conclusion of the activities of the Organisation for Economic Cooperation and Development (OECD) related to the 1998 Harmful Taxation Report, Barbados’ right-standing in the areas covered by the report was affirmed.
Despite strong pressure to join the ‘race to the bottom’ in respect of taxation rates, Barbados has maintained a comprehensive system of taxation and though it has reduced rates from 40 per cent over three years, plans are not now in the works for further reductions. Moreover, aside from defending our country’s reputation from ill-informed, mis-characterisations of our brand of business, Barbados’ involvement in the issues that attend the international dialogue on “tax competition” has been to reinforce our belief that when practiced in a fiscally responsible and transparent way it should not be impugned.
To that extent it has be heavily involved in the area of transparency and tax information exchange not only as an “invited participant” in the Global Forum and its Peer Review process but also in the expansion of its bilateral tax agreements which codify the 2008 OECD standard. For this reason, Barbados was not surprised by its inclusion in the G20 “white-list” last year. Though joined by a number of former “grey-listers” Barbados was the first Caribbean country to be so designated.
The relative ease with which new entrants have gained recognition as “compliant” with the standard has however confirmed Barbados’ belief that expressions of political intent reflected in Tax Information Exchange Agreements is insufficient to achieve the practice of efficient and effective tax information exchange.
Barbados is therefore more concerned with the actual “practice” of international cooperation with which it already has a track-record through the presence of tax exchange provisions in its oldest treaties including its only TIEA with the United States which stands alongside its 1984 tax treaty.
As a domicile concerned more with growing its business not on downward movements of taxation rates but on based on a network of bilateral treaties which support substantial trade and commerce Barbados continues to expand the instruments which enable this while simultaneously provide explicit means for administration tax cooperation.
Efforts and existing regimes with regard to transparency
Barbados’ efforts in relation to transparency have a long history. We value privacy and confidentiality – principles protected by law and in practice. We have not however used secrecy as a means of levering foreign investment. Barbados holds the view that the standards we apply to our domestic sectors should equally apply to those operating in the international business and financial serves sector. It should therefore come as little surprise that Barbados has never provided the facility of “bearer” shares to its investors.
Barbados’ efforts with respect to transparency are, in large measure, located in the content of its tax treaties. This network of treaties includes agreements with the Netherlands, Luxembourg, Mexico and Panama which reflect the 2008 OECD standard; recently concluded conventions with Spain, Italy, Vietnam and Belgium which also codify the standard; while Protocols are being finalised with Seychelles and Botswana to include the standard. Negotiations currently in train with Iceland, India, Czech Republic and Chile already contemplate the inclusion of the standard in the final version.
Finally others efforts around transparency principles being pursued by Barbados are in the context of the work of the Financial Action Task Force (FATF) and the implementation of the Forty Recommendations. Though focused on anti-money laundering and anti-terrorist financing it is a settled fact that the content of these recommendations have at their heart better international coordination in matters of transparency.
Vision for the future
Barbados has always been a staunch exponent of regionalism and continues to believe that the Caribbean community, including those not party to the formal CARICOM arrangements can and should reinforce each other’s prosperity. As relatively small states, some sovereign others dependencies we do need much in real terms to satisfy the level of national wealth aspired to and expected by our people. While our small size presents constraints in the area of physical infrastructure and the number of persons for whom provision is to be made, it need not limit fetter our ambition.
For the future Barbados would wish to see more opportunities for greater institutional dialogue amongst regional OFCs especially in the context of our association with the Global Forum. Several cross-cutting issues have already been thrown up as a result of the global financial crisis – some old and some new – but each warranting the action and attention of the regional collective. This is not to suggest that hard-won competitive advantages ought to be sacrificed but rather protected through joint action, where activity internal and external to the region, threaten our viability.
It would also be good to see expanded opportunities for increased investment flows amongst OFCs in the Caribbean. Already there are established patters related to the movement of natural persons throughout the region and whilst trade in goods and services continues more can be done in relation to investment in international business and finance services. Greater offshore-offshore collaboration not only in terms of policy and practice but investment would ensure the long-term sustainability of our activities in this area.
Finally, Barbados hopes that given recent policy changes in some onshore jurisdictions will mean a fair and more balanced approach to competition for international business and financial services absent the rhetoric which cannot stand in the face of careful scrutiny and serves only to distort the truth even as it muddies the waters of legitimate OFCs.