A UNITED STATES (US) GOVERNMENT initiative to clamp down on tax dodgers, and Barbados’ participatoin in the effort, appears weighted in the Americans’ favour.
Dr Ankie Scott-Joseph and Dr Stephen Harewood, both members of the Department of Economics at the University of the West Indies, Cave Hill Campus, reached that conclusion in the preliminary findings of their paper The Foreign Tax Compliance Act – Is This The Ultimate Tax-Sneeze?
The Foreign Account Tax Compliance Act (FATCA) is a US Federal law requiring all financial institutions outside the US to periodically report information, about financial accounts Americans hold, to the US Internal Revenue Service.
Barbados is one of the governments cooperating with the US on this matter and the two have signed an inter-governmental agreement to this effect.
Scott-Joseph and Harewood sought to “determine the potential impact of this law on Barbados” and conducted a cost benefit analysis.
The responses to a questionnaire, through which they sought answers from “experts in the financial and tourism sectors, and the Government, along with other people with relevant expertise . . . so far . . . have not been good and, as a result, they have not yet been analysed”.
However, the duo said their preliminary analysis determined that “it is better to comply than not to comply”, although they added that the US appeared to be holding most of the cards.
“The analysis does not consider information sharing between Barbados and USA or tax avoidance by Barbadians earning income overseas.
As far as information sharing is concerned, the relationship is asymmetric; therefore, the USA may withhold information from Barbados while demanding access to all information which is available to Barbados,” they said.
“This unfair sharing of information will affect Barbados’ ability to prevent tax avoidance by Barbadians earning income in the USA.”
Additionally, the full impact on certain sectors in Barbados, if there was non-compliance with FATCA, was unclear from this initial research.
“For example, the category business and general services is used to capture the contribution of US entities to the financial sector; however, the majority of the contribution of this sector is generated by local businesses and service providers,” the report stated.
“Consequently, the weight of the US contribution is most likely to be considerably over-stated.
“Future work on this paper will therefore seek to isolate the contribution of the USA so that a better informed decision on compliance can be made.”
It added: “Another factor is that the analysis does not consider the political impact, on the relationship between the two countries, of the decision alternative chosen. The USA, because of its dominance, can impose various sanctions on Barbados for non-compliance and, even if Barbados may be better off by not complying, the costs of the risks associated with non-compliance may make compliance the preferred alternative.” (SC)