Is Barbados’ attractiveness to Canadian international business under threat?
In the wake of the so-called Panama Papers scandal, international financial centres like Barbados have faced increased scrutiny.
Barbados has arguably been under the radar more than other domiciles which focus on international business and financial services. This has certainly been the case in relation to Canada, where Barbados gets most of its business.
Fearing the impact of a negative campaign against the island in the wake of the Panama Papers issue, Government issued a Press release to assure the assure international investors that the island was no tax haven.
The statement also pointed to research from Canadian academic Dr. Walid Hejazi, who suggested that the relationship between Barbados and Canada was a mutually beneficial one.
Hejazi, who is Professor of International Business, Rotman School of Management, produced research which concluded that the relationship Canadian companies had with Barbados had “delivered significant trade, employment and tax benefits to the Canadian economy.
“The use of Barbados by Canadian companies generates between 26 000 and 31 000 additional jobs in Canada. Governments should work to deepen relationships with [offshore financial centres] that have enhanced transparency and exchange of information agreements, with Barbados serving as the model jurisdiction,” he said.
Others in Canada have not been so positive in their reference to the Canada/Barbados business relationship.
Last month, in what it called a “joint investigation” with the Toronto Star, the Canadian Broadcasting Corporation said Barbados “has been a darling of corporate Canada because it has had a tax treaty with Ottawa since 1980”.
“The pact allows Canadian companies with subsidiaries in Barbados…to bring their offshore profits back home subject only to the low Barbadian income tax rate of between one and 2.5 per cent,” it added.
The Star said last year “Canadian corporations held CAN$79.9 billion in assets in Barbados, according to Statistics Canada. That makes Barbados the third most popular place for Canadian businesses to invest, directly behind the United States and the United Kingdom”.
Canadian barrister and solicitor Andrew Rogerson, in an analysis on the issue, said: “Barbados, in common with most offshore finance centres, provides a favourable tax regime for international business corporations. IBC status is given to companies that are carrying on the business of international manufacturing or international trade or commerce. Broadly speaking, these activities have to be carried out in Barbados, with exports or the provision of services being to countries outside the CARICOM area.”
Rogerson said the net result of the benefits Barbados offered was: “A Canadian resident corporation establishes a foreign affiliate in Barbados in the form of an IBC. The IBC makes CAN$100 profit. Barbadian tax on the profit is levied at 2.5 per cent leaving CAN$97.50 to be remitted by the Barbadian foreign affiliate to its parent company in Canada. The parent company receives the dividend completely free of Canadian taxation.”
Based on recent statements in Parliament by François-Philippe Champagne, Parliamentary Secretary to the Minister of Finance in Canada, the Canadian government does not intend to target Barbados specifically. This suggests that Barbados will continue to attract international business from the North American country.
However, there will be an effort to reduce tax evasion by Canadian companies that invest in Barbados and other financial centres.
Champagne said: “We are acting on a number of recommendations from a multilateral project to address international tax planning arrangements undertaken by multinational enterprises to inappropriately minimize their taxes. We are also in the process of implementing the automatic exchange of financial account information to better combat international tax evasion.”