Is Barbados’ attractiveness to Canadian international business under threat?
We need to talk about what tax rates are actually in effect in Barbados on international business companies. What we find is that on the first CAN$5 million of profit, the tax rate is 2.5 per cent.
That used to go down to a tax rate of one per cent. However, as of 2013, Barbados has cut that all the way down to 0.25 per cent.
A quarter of a percentage point on profits over CAN$15 million a year is what international companies pay in Barbados, we have to talk about what is really happening in Barbados.
Certainly it makes sense that if a Canadian company actually pays a decent amount of tax somewhere and then repatriates profits back home it does not again pay Canadian tax on that same money, and fair enough.
There is absolutely a very serious problem of Barbados being a tax haven and it really does not make sense to exempt profits repatriated from that country from Canadian tax.
How big a problem is it? Maybe there is a little loophole there, but if Canadian companies are not really taking advantage of it, we would not worry.
If we look at Statistics Canada’s figures on foreign direct investment positions, we find that most of Canada’s foreign direct investment is in the United States, as one would expect, but the second largest Canadian foreign direct investment position in the world is in Barbados at CAN$71 billion.
Why is that?
Barbados is a pretty small country. Its GDP is something like CAN$5 billion, so why would we be parking CAN $71 billion in an economy of that size?
I think it is obvious that Barbados is just being used as a tax shelter. Why would Canadian companies be investing more in Barbados than, say, in the United Kingdom, the third largest country for Canadian foreign direct investment?
The United Kingdom, of course, has an actual economy and there are things there that corporate Canada might actually want to invest in.
There is a really big issue with Barbados. It is not to say there are no other tax havens, but clearly, Barbados is the biggest tax haven being abused by corporate Canada.
We have to start somewhere and it makes sense to start with the biggest part of the problem.
The third question that we need to address is: what is the government doing about this very serious and very large problem?
There was a lot of talk in speeches from the Liberals about all the good measures in the budget to deal with tax evasion.
Indeed, the budget documents use the term “tax evasion” about a dozen times. It even uses the term “tax avoidance” about half a dozen times.
A word that does not appear in the budget at all is “Barbados”. We are going to fight tax evasion without even talking about the largest source of tax evasion and tax avoidance. That is a very major problem.
Erin Weir is a Canadian Parliamentarian and economist.