If the leaders of several nations including Britain, Iceland, Pakistan and Russia are having nightmares ever since the secrets in the Panama Papers were disclosed, Barbados’ Prime Minister Freundel Stuart insists he has nothing to fear.
For like United States (US) President Barack Obama and Canada’s leader Justin Trudeau, Stuart is adamant that he doesn’t have sleepless nights when it comes to possible secret financial wheeling and dealing.
“I have never had enough money to invest anywhere,” was the way he put it recently to BARBADOS BUSINESS AUTHORITY in New York when discussing the subject of the 11.5 million leaked files from Panama’s Mossack Fonseca, a law firm. “I have always lived so simple a life” that there is absolutely no worry.
“That’s the one thing I do not have to fear and it is having any such revelations made about me,” he said. “There are no secrets in the life of Freundel Jerome Stuart. None.”
Trudeau, Canada’s new prime minister, had a similar reaction when he too, was asked about the papers and his finances.
“I have entirely and completely been transparent about mine and my family’s finances,” he said.
But both prime ministers are concerned about the Panama Papers for two completely different reasons. While Trudeau wants to crack down on Canadians who are avoiding taxes by establishing shell companies in several jurisdictions in Europe, the US and the Caribbean, Stuart is keeping his fingers crossed that the issue wouldn’t hurt Barbados’ offshore financial services sector.
“The facts are still unfolding, as it were, and I can just hope that when all the facts become known the reflection on Barbados and its international business sector is not too negative and we do not have to deal with any further challenges in that sector,” said Stuart. “We have had enough to deal with.”
A major challenge Canada is facing is what to do about its wealthy citizens and firms which, according to Statistics Canada, may be playing hide and seek with Revenue Canada by pouring as much as CAN$270 billion in ten low tax jurisdictions in the Caribbean, Europe and Asia in recent years.
And that turns the spotlight on Barbados. Recent figures released in Ottawa suggest Canadians routed almost CAN$80 billion through Barbados in 2015, a 14 per cent increase over the amount in 2014. The Cayman Islands, Switzerland, Bermuda and Hong Kong are also on that Top Ten list. Those countries registered a 34 per cent increase in 2015.
But those numbers may be misleading. For one thing, the vast sums may not be solid direct investment in the country. Look around Barbados and you wouldn’t find CAN$79.9 billion in new investment in the past year. It is understood that much of that money passed through the island on its route to other places.
Dennis Howlett, an official of Canadians for Tax Fairness, an advocacy group that has put Barbados and its Caribbean neighbours on its radar screen contends Barbados is a “tax haven” and he told the Toronto Globe & Mail recently that Canadian firms were using “legal measures” to route investments offshore to avoid paying taxes on profits to Canada.
That’s where Canada Revenue Agency (CRA) in Ottawa, the equivalent of the Barbados Revenue Authority, comes in.
The Trudeau administration is spending hundreds of millions of dollars in the next few years to crack down on Canadians who use so-called “tax havens” to elude the CRA. That’s new money which the new administration is spending. For instance, it’s pumping an additional CAN$90 million allocation into CRA for a planned crackdown. The agency intends to hire 100 new auditors to conduct audits and other investigations into tax returns to identify tax cheats.
Interestingly, Barbados may not be at the top of the CRA list of jurisdictions to be scrutinized. The number one domicile is the Isle of Man, a British dependency which doesn’t have a corporate tax.
“Wealthy Canadians should not be able to buy their way out of paying the taxes they owe,” argued Diane Lebouthillier, the Minister of National Revenue, who declined to identify the jurisdictions she has in mind. But it shouldn’t come as a surprise if Barbados ends up among them.
Trudeau, who earns CAN$334 800 a year, agrees with his minister.
“Obviously, the Panama Papers are highlighting some really big concerns that people around the world have about the fact that extremely wealthy people have been very effective at avoiding paying their fair share of taxes,” the prime minister said recently, “That’s why in the [2016 government] budget even before the Panama Papers came out, we allocated an extra CAN$440 million to the Canadian Revenue Agency to ensure they are empowered to go after tax avoidance and tax evasion.”
But all attention shouldn’t be focused on Ottawa. Barbados should be looking at the US. For while Washington is inveighing against the use of tax evasion by Americans the US is shielding its own tax havens from international glare. South Dakota, Vermont, Delaware and California, places where almost a US$1 trillion in offshore wealth is stored, come quickly to mind.
The Financial Times (FT) of London underscored US hypocrisy when it drew attention to an old discount store in Sioux Fall, South Dakota where 40 trust companies share an address that is home for US$80 billion in trust funds now being administered and out of sight of the Internal Revenue Service.
“Sioux Fall has become a magnet for the ultra-wealthy who set up trusts to protect their fortunes from taxes and future expenses,” stated the FT. “Assets held in South Dakota Trusts have grown from US$32.8 billion in 2006 to more than US$226 billion in 2014.”
That’s a lot of money for a place like South Dakota.