Barbados Urged To Raise Offshore Tax Rate to 10%

Mandy Robinson, Tax-news.com, London

06 September 2000

Last week, Barbados played host to the launch of a certificate and diploma in the management of offshore finanical services. Attending was Stephen Fern, chief executive officer of BPP Offshore, a UK-based educational institution specializing in offshore training. However, offshore training was not the only item on his agenda. During his visit to the island, Mr Fern seized the opportunity to urge the Barbados government to blow the dust off its current 2.5 per cent offshore tax rate and raise it to a respectable 10 per cent.

The danger is, says Mr Fern, that such a low tax rate can potentially be viewed as a hostile and aggressive taxation strategy by some of the more powerful OECD countries. He stated: 'I think the 2.5 per cent is ridiculously low and such a rate is not seen as credible.' He believes that 10 per cent is an acceptable level for both Barbados and the OECD. Considering the 40 per cent domestic corporation tax in the majority of OECD countries, Barbados would continue to maintain its appeal for offshore investors.

Mr Fern maintains that the tax hike would be to the advantage of Barbados because, not only will it generate substantial revenue, but also investors who have considered 2.5 per cent as an unethical tax structure and consequently steered clear of the country, will reconsider Barbados as a respectable investment vehicle. BPP's CEO said: 'I think that you would attract a higher calibre of business, there is no doubt that some companies shun these jurisdictions because of the perceptions.'

In addition, Mr Fern explained the need to cooperate with the OECD because its influence over commerce and trading operations can result in a negative impact for small economies in such areas as trade and investment. He advised: 'you have to play ball a little better, rather than hide behind legal/constitutional arguments, you must face up to their commercial power. They may not have strong legal arguments, but they do have de facto power. Guernsey adopted a strong stance, but it also told the OECD “we will talk to you”.'

The correct response to the recent OECD crackdown on tax havens, he added, 'is to ensure that your jurisdiction is offering quality, legitimate commercial activities ... in fact some jurisdictions are making certification mandatory for practitioners in the offshore field. This is something that Barbados is well placed to do since historically it has attracted only legitimate business and so it has a clean sheet.'

A further issue for the OECD is the plight of Russia, which has recently joined the G7 nations. Russia has been leaning on the OECD to deal effectively with low tax regimes because its own economy is on its knees and the government is losing a great deal of its tax revenue which is diverted to offshore tax regimes. 'As a result', said Mr Fern, 'they fear that the economy could collapse which could see a return of communism, as Russians become fed up with the democratic programme ... [therefore] the strategy would be for Barbados to initiate discussions among competing jurisdictions, leading to a harmonised raising of the tax platform by all jurisdictions.'

It was Sir Allan Walters, former chief economic adviser to Margaret Thatcher, who originally put forward the suggestion of a 10 per cent offshore tax rate. He believes that this, complemented by a necessary workforce of highly trained professionals, will successfully sustain the economy of the jurisdiction, otherwise a "brain drain" will occur where professionals will seek employment elsewhere.

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