Barbados Considers Tax Convergence Scheme For Offshore And Local Businesses

Mandy Robinson, Tax-news.com, London

03 January 2001

The Barbados government is considering reforming its tax laws for offshore and local businesses and is looking into the possible implications of the convergence of the offshore and onshore sectors.

According to International Business Minister Reginald Farley, the government has launched an investigation to 'study the fiscal implications because the impact would not just be on the offshore companies but also on what is the tax-take from companies in the domestic sector.'

Mr Farley was addressing a press conference at Government headquarters last week to inform the media of the progress on a planned meeting between the OECD and the Caribbean countries involved in the OECD's report: 'Harmful Tax Competition - An Emerging Global Issue.' Discussions of tax rate convergence between offshore and onshore companies has emerged as part of Barbados' response to its inclusion on the OECD's blacklist of countries with supposed "harmful" tax regimes.

Also attending the press conference was Director of International Business, Lynette Eastmond, who said Barbados has informed the OECD that it would cooperate with the organisation's demands if its constitutional mandate to act in accordance with principles of good governance is respected. She stated: 'While it is hoped that the conclusion we can come to is that there is some basic fundamental principles that we can agree to and this is primarily what Barbados has been arguing for quite a long time.'

Convergence has already taken place within Barbados' insurance sector. In 1998 laws governing the industry were reformed to permit companies involved in offshore insurance to register under the Insurance Act and to use the relevant section under the Income Tax Act to reduce their tax down to the 2.5 per cent rate. According to Mr Farley: 'Convergence is not only about the tax issue. I think there is a recognition internationally that countries must be free to tax at a rate that they want to tax at.'

Currently Barbados levies a tax rate between zero and 2.5 per cent for international business companies (IBCs) but charges a corporate tax of 40 per cent for its local companies. Company tax revenue in Barbados for the 1999/2000 financial year was US$116.54m.

Mr Farley commented: 'There is a school of thought emerging internationally that many of the issues which arise concerning "ring fencing" - that is, the separate regimes for international companies as opposed to domestic companies - can in fact be eliminated. He said this could occur under a system of convergence whereby all companies in Barbados would be obliged to register under the Companies Act: 'We believe, perhaps, that that is a decision which we will have to arrive at sooner rather than later,' he said.

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