THE ISSUE: No certainties for offshore sector

BARBADOS HAS FACED and overcome many challenges in defence of its important international business and financial services sector. It seems that as soon as one hurdle is safely navigated, another appears and becomes a worrying obstacle.

Battles against action taken by entities, including the Organisation for Economic Cooperation and Development (OECD), often come to mind. However, Barbados’ previous stormy relationship with the Paris-based OECD has evolved to the point where the island holds a senior post within the OECD-led Global Forum On Transparency And Exchange Of Information For Tax Purposes.

While not directly related to Barbados, some believe that the now widely known Panama Papers scandal could somehow affect the island’s international business and financial services sector in the future.

Amid allegations that a number of people, including some prominent individuals, have used Panama to stash money away, out of the sight of the tax man at home, there are suggestions that offshore financial centres like Barbados will feel the full weight of a so-called tax evasion crackdown.

While Barbados was not named specifically, Canadian authorities, as well as those in Europe and the United States, have indicated their intention to pursue such a crackdown.

Reacting to the Panama Papers leak, Minister of International Business Donville Inniss said Barbados had a positive track record of embracing and implementing transparency and the exchange of information for tax purposes between partner governments.

In this regard, he pointed to the country’s work in relation to the OECD’s global standard for the automatic exchange of information, and the signing of an inter-governmental agreement between Barbados and the United States. The latter was to facilitate compliance with the US Foreign Account Tax Compliance Act.

“Additionally, beyond being highly cooperative and transparent, Barbados’ position as a pre-eminent low-tax jurisdiction attracts business of substance and ethical business structures that provide significant benefits to both domestic markets and the global economy,” Inniss said.

In an analysis published by international publication IFC Review, Richard Hay, head of tax at British law firm Stikeman Elliott (London) LLP, said he disagreed with suggestions that offshore financial centres needed to be shut down in the wake of the Panama Papers issue.

“International investment from diverse sources is pooled in funds in tax-neutral countries like the Cayman Islands, which hosts many of the world’s hedge funds. Cost-efficient facilities afforded by such centres increase investment and pension returns, improving the lives of ordinary workers in retirement and easing the social welfare burden on cash-strapped governments,” he said.

“Such pooled funds are liable to tax in the countries where their income and gains are earned, and again when received by the ultimate investors. Are these arrangements suspect simply because there is not a third level of tax where the funds are pooled?”

Commenting on the issue of compliance, the OECD said its Global Forum “has identified a number of member countries and jurisdictions whose legal and regulatory framework for the exchange of information are as yet not up to international standards”.

“They include Guatemala, Kazakhstan, Lebanon, Liberia, Micronesia, Nauru, Trinidad and Tobago and Vanuatu. It is clear that there are other jurisdictions where a lack of information on beneficial ownership of corporate and other entities is facilitating illicit flows,” it added.