BEHIND THE HEADLINES: Barbados, Ireland in the US cross hairs
What do Ireland and Barbados have in common?
“In some people’s eyes, Ireland is to Americans what Barbados is to Canadians,” said Evelyn Greaves, a former Minister of Trade, who until recently was his country’s High Commissioner in Ottawa.
“They are two places that attract large corporations and wealthy individuals who are interested in lowering their tax bills.”
And what they are doing is perfectly legal. Almost every day there is considerable discussion on Wall Street, London or Brussels about the most effective way to slash the rate of corporate inversions, defined as firms which use mergers and acquisitions to shift their headquarters from a high-tax country like the United States (US) to places that range from Ireland, Barbados and Luxembourg to the Netherlands, which either don’t have corporate tax rates or levy negligible rates. Barbados is among the latter.
Just last month finance ministers and central bank governors from the G20 countries met in Cairns in Australia with a major objective: agree on sweeping tax reforms that would close loopholes that large corporations exploit to keep almost all of their profits from revenue agencies.
According to some estimates, Ireland is the biggest magnet of them all, attracting at least 100 000 firms that rely on their executives and Ireland’s Ministry of Finance to reduce tax bills at home.
That’s why Washington has placed Ireland on its radar screen for scrutiny because of the frequency of corporate inversions and the tens of billions the Obama Administration insists are being lost by the Internal Revenue Service. But Washington isn’t alone.
The European Commission competition watchdog panel is scrutinising an agreement between Ireland and Apple Inc. The European Union’s (EU) preliminary finding contends the deal amounts to Ireland providing Apple with illegal state aid that may run into billions of dollars. If true that would be illegal.
Of course, Apple denies any wrongdoing, insisting “we’re subject to the same tax laws as the countless other companies who do business in Ireland”.
The EU is also examining somewhat similar deals made by Starbucks and the Netherlands and Fiat with Luxembourg to see if they, too, are unfairly exploiting international tax loopholes.
The EU is demanding that Apple hand over more documents before a final determination is made in the widely publicised case. Should the early findings be confirmed, Apple may have to refund billions of dollars in taxes.
“It’s a shot across the bow for many European tax authorities who have to look at what kind of sweetheart agreements they may have in place that would be hard to justify,” observed Alex Cobham, a research fellow at London’s Centre for Global development.
Clearly, Europe, Washington, the Organisation for Economic Cooperation and Development and the G20 are coordinating their efforts to weaken corporate tax avoidance wherever it can be found.
Less than a month ago, the US Treasury announced restrictions on corporate inversions by reducing incentives to switch corporate headquarters from say, the US, to Ireland or even to Canada in order to avoid paying taxes.
The Organisation for Economic Cooperation and Development, the rich nations’ club in Paris, which went after Barbados and its Caribbean neighbours several years ago by accusing them, quite unfairly, of engaging in money laundering, is setting up its own system to block corporate tax avoidance.
“(It) marks an expansion in the growing global war on tax avoidance by multinational companies,” stated Jesse Drucker in Bloomberg.com. “Governments that enable it are now a target.”
But what do these actions have to do with Barbados? Quite a lot.
Although the Caribbean island isn’t in the corporate inversion league of Ireland, it hasn’t escaped the gaze of critics who contend there is something wrong with a tiny nation of less than 300 000 people serving as a conduit for more than CAN $60 billion in corporate money and individual wealth being legally kept out of the prying eyes of Revenue Canada.
Barbados, which has a low corporate tax rate, is the “third most popular destination for investment flowing from Canada, just behind more obvious destinations such as the United States and Britain,” according to the Globe & Mail in Toronto.
Greaves, who has since returned to Barbados after retiring from his diplomatic posting in Ottawa, cited a Barbados-funded study conducted by Professor Walid Hejaj of the University of Toronto which showed that Canada benefited significantly from the flow of funds through the island-nation.
The investments have created thousands of jobs in Canada and Canada’s international trade figures.
“The more people in Canada who find out the truth, the more they will understand why it is in Canada’s interest to be in Barbados in this way,” said the former diplomat.
In the meantime though, Barbados, like Ireland, remains under the microscope.