Offshore Banker Urges Barbados To Consider Issues Surrounding Tax Convergence

by Amanda Banks, Tax-News.com, London

26 August 2004

The Barbados government should begin to actively consider the issues surrounding convergence of the tax rate between offshore entities and domestic firms, the Managing Director of a Barbados-based offshore bank has urged.

Heinrich Funk, MD of Mancal Bank (Barbados) Inc, told the Barbados Advocate that it is time for the government and the private sector to stop talking about tax convergence and begin to actively investigate in order to find solutions to questions such as the right rate at which to unify company tax.

Mr Funk called for a detailed survey to canvas the opinions of international businesses on the issue of tax, which he suggested should also include input from government and the domestic private sector.

At present, international businesses are charged a tax rate of 2.5%, whilst domestic firms are taxed at a rate of 25%.

This makes finding the equilibrium tax rate a tricky balancing act, as it will almost inevitably involve a tax increase for international companies. Mr Funk warned that a rate of 12% will likely be too onerous for international firms, and suggested that 5% would be an acceptable rate.

The president of the Barbados Financial Services Board, Penny Ettinger, has also suggested that the gap in tax rates between local and international businesses be narrowed.

Speaking to the Barbados Daily Nation recently, she mooted the idea of a 2.5% rise in the current maximum rate paid by businesses in the offshore sector, in tandem with a reduction in the rate paid by domestic firms to 10% or possibly lower.

However, both Ettinger and Funk acknowledged that the issue is likely to be highly sensitive with both government and business, given that the international business sector contributes 40% of the jurisdiction’s corporate tax revenues.

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