"That's an inaccurate and misguided labelling of Barbados," said Michael King, Barbados' Ambassador in Washington to local newspaper Nation News. "Those members of Congress should know that their country doesn't sign double taxation agreements with tax havens. We have had a double taxation treaty with the United States for almost 25 years. The OECD members don't conclude investment treaties with tax havens and that should be known to officials on Capitol Hill."

"In the past we have signed investment treaties with Cuba, Venezuela, China, Germany, the United Kingdom, Mauritius and Switzerland. These agreements with many foreign countries should underscore the point that Barbados is a very clean jurisdiction that doesn't encourage tax evasion or money laundering," said the Ambassador.

As of 2007, Barbados has 14 tax treaties with the following countries: The Caribbean Common Market (CARICOM), the United States, Canada, Austria, United Kingdom, Finland, The Netherlands, Norway, Malta, Sweden, Switzerland, Cuba, Venezuela, China, Mauritius and Botswana. Discussions between Barbadian and Japanese officials over the possibility of a tax agreement took place in August 2006, and Barbados has also explored negotiations for a double tax treaty with India.

The Barbados/US tax treaty dates from 1984, and was accompanied by an exchange of tax information agreement. The treaty creates opportunities for 3rd country investors in US real estate, and is also attractive to US manufacturers. Many US investors are exempted from US accumulated earnings tax on Barbadian profits - this is a rare feature in US tax treaties. A protocol to the US treaty signed in 1991 lowered withholding rates and introduced new 'limitations on benefits' rules.

The US treaty was further amended in 2004 in what was said to be an attempt to counter tax evasion. The second protocol to the 1984 treaty was co-signed by then US Treasury Secretary John Snow and Barbadian Industry and International Business Minister, Dale Marshall.

“The Protocol we are signing today is a demonstration of both the strength of our relationship and the commitments of our respective governments to keeping the tax treaty's provisions up to date in light of economic developments,” commented Snow on the agreement.

He went on to explain: “The focus of the agreement is the modernization of the anti-treaty shopping provisions, which are the central mechanism for ensuring that the benefits of our income tax treaty go exclusively to bona fide residents of Barbados and the United States. The agreement contains modifications necessary to address concerns about inappropriate exploitation of treaty benefits, including the potential for the unintended use of the treaty by US companies that purport to migrate their corporate structures. The agreement further ensures that the treaty operates to accomplish its intended purpose of addressing double taxation and cannot be used inappropriately to eliminate all taxation altogether."

The protocol was ratified by the US Senate in November, 2004, although some tax experts expressed unease that certain new provisions have found their way into the treaty without being fully reviewed. Judith P. Zelisko, president of the Tax Executives Institute (TEI), whilst supporting the bulk of the new agreement, pointed to concerns over rules expanding the Limitations on Benefits provision to the US treaty network “without thorough analysis.” However, Zelisko conceded that despite these reservations, “on balance we agree that ratification of the Barbados Protocol is in the best interest of the country and the business community”.

44 of the USA's largest and most influential free-market groups sent a letter in late March urging Treasury Secretary Henry Paulson to "protect America's self-interest" and oppose the proposals by Senator Byron Dorgan (D-ND) and Senator Carl Levin (D-MI) that "seek to thwart tax competition and penalize good tax policy in other jurisdictions."

The letter from the Coalition for Tax Competition states, "Senator Byron Dorgan of North Dakota has proposed S. 396, a bill which targets American companies operating in selected low-tax jurisdictions and strips away their ability to postpone the imposition of a second layer of tax on their foreign-source income. Senator Carl Levin of Michigan has proposed S. 681, a bill which imposes a wide range of taxes, regulations, and penalties on American taxpayers operating in selected low-tax jurisdictions. … Both of these pieces of legislation are deeply flawed. They share a common premise that the U.S. government should adopt an adversarial position against jurisdictions with pro-growth tax policy."

The letter details three flaws with the two proposals:

• Both bills will undermine American competitiveness;
• Both bills create discriminatory blacklists;
• Both bills violate America's WTO trade obligations.

"Senators Dorgan and Levin should be ashamed for their discriminatory attacks on less economically developed countries. American lawmakers should encourage more nations in the developing world to adopt pro-growth tax regimes, not penalize them," stated Andrew F. Quinlan of the Center for Freedom and Prosperity Foundation .

The 45 signers of the letter encourage Secretary Paulson and others to reform he United States' tax code so it is more competitive rather than penalize Americans for investing in developing nations with competitive tax systems.

Dan Mitchell of the Cato Institute said: "Senators Dorgan and Levin have managed to combine the worst of all worlds. Their bills hurt U.S. competitiveness, discriminate against developing nations, and violate America's WTO obligations."

Veronique de Rugy of the American Enterprise Institute said: "Rather than blacklisting nations with better tax law, Senators Dorgan and Levin should work to make America's tax system more competitive – even if it means giving up some of their power to redistribute money to favored interest groups."

Grover Norquist of Americans for Tax Reform said: "Instead of behaving like French politicians and trying to blacklist nations with better tax policy, Senators Dorgan and Levin should lower tax rates to encourage more jobs and investment in America."

Ambassador King said this week the island was very concerned about the measure because of its possible negative impact on the offshore sector not only in Barbados, but throughout the Caribbean.

"We remain focused on the matter in order to see how the leaders of the Senate would come up with a final version of the bill," King said. "We have to look at this in its totality since there is concern in the US about the impact such legislation would have on their own companies which are functioning in the international arena."