Posted on

International business sector under scrutiny again

Andew Brathwaite

International business sector under scrutiny again

Social Share

Last November, French President Nicolas Sarkozy named Barbados among 11 countries identified as “tax havens”.  
This would have come as a something of a shock to those who are aware of Barbados’ growing network of double taxation agreements (DTAs) and our reputation for strong regulation and transparency.
The criticism, however, was a consequence of critical weaknesses in Barbados’ framework for the exchange of tax information as identified in a recent evaluation conducted by the Global Forum on Transparency and Exchange of Information.    
Under the Global Forum’s Peer Review programme, Barbados was assessed on ten elements of its legal and regulatory framework covering availability of relevant information, access to information by a competent authority, and whether that information may be exchanged on a timely basis. For two of these areas, Barbados did not have the required elements in place and in a further four areas, the elements were only partially in place.
For example, deficiencies were found with respect to the availability of ownership information for certain entities and with the requirement for some categories of trusts to maintain reliable accounting records.
In addition, it was observed that Barbados did not exchange information on some international business companies (those which are excluded from treaty benefits), and cannot exchange bank information with a quarter of its treaty partners – these were considered serious deficiencies.
These events call into question Barbados’ ability to ensure that its double taxation agreements and its domestic law will always comply with changing international best practice and Organization for Economic Cooperation and Development (OECD) guidelines.
It takes far too long for even simple changes to be made to our legislation, and the difficulty is compounded in the case of the bilateral agreements where our treaty partners may accelerate or delay the process as they see fit.
Furthermore, while other jurisdictions rushed to sign tax information exchange agreements (TIEAs) in order to satisfy the Global Forum requirements, Barbados’ initial strategy was to refuse to sign TIEAs and insisted instead on DTAs.
This action attracted a slap on the wrist from the reviewers who advised Barbados to enter into TIEAs with all interested partners. The strategy which served us so well in the past threatens, for the time being at least, to become a liability.
It is clear that the burden of regulatory compliance will continue to increase in the foreseeable future, and this will be a significant challenge for local lawmakers and regulators as well for many entities in the private sector.
Many of our competitors for international business are much faster to react to national and international developments, are swifter to make changes in policy and regulation, and have dedicated far greater resources and creativity to developing international business. Barbados seems destined to fall even further behind the pack.
Our nation will have to address the critical deficiencies identified before we are permitted to move to the next phase of the Global Forum’s review, which will examine whether in practice, information is available and accessible by the authorities and on a timely basis. This phase is likely to reveal additional weaknesses unless we move now to start correcting them.
Barbados will also have to do more to participate in the decision making and governance of key international bodies to help us to better defend our interests and counteract ill-informed accusations.
Several of our key international business competitors are members of the Steering Group and Peer Review Group of the Global Forum, and Bermuda and Cayman Islands were among a group of eight nations which provided voluntary contributions for 2011.
The Global Forum’s Peer Review Group met six times in 2010 and 2011 – four times in Paris, once in Bermuda and once in Cayman Islands.
Barbados might not be a tax haven in the conventional sense, but we must radically rethink our approach to international business if we are to be considered a serious participant.
• Andrew Brathwaite is president of the Institute of Chartered Accountants of Barbados.