Invest Barbados



Understanding Double Taxation Agreements

 

In order to encourage the growth of international trade and commerce, and to provide a measure of certainty regarding the interpretation and application of tax laws and regulations, successive Barbados governments have sought to conclude double taxation agreements (DTAs) with important trading partners, including emerging countries. This policy is expected to continue into the future.

The issues surrounding tax are dynamic and increasingly evolving, and are becoming more and more complex, both locally and globally.  One of the fundamental tenets of DTAs is that they seek to eliminate the double taxation of income arising in one jurisdiction and paid to another.  

Double taxation
There are two kinds of double taxation:


•    juridical double taxation (most commonly seen in the international arena); and


•    economic double taxation.

The Organisation for Economic Co-operation and Development (OECD) defines “international juridical double taxation”, in general terms, as the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods. For example, in determining the right to tax worldwide income, overlapping criteria, like the place of incorporation and the place of management, are used to determine the dual residence of a company and the taxing rights of worldwide income in each jurisdiction.  

The International Bureau of Fiscal Documentation defines “economic double taxation” as the imposition of comparable taxes by two or more tax jurisdictions on different taxpayers in respect of the same taxable income. For example, corporate profits being taxed at the corporate and the shareholder level. At the international level, consider transfer pricing and the increase in profits attributed to one jurisdiction, without the corresponding reduction in profits applied in the other.

Double taxation may be imposed at:


•    a domestic level - by different taxing authorities, and


•    an international level- by sovereign states.

Double taxation relief
Double taxation has a number of harmful effects, which include having a negative impact on the exchange of goods and services and on the movement of capital, technology and persons.

Some forms of double taxation relief are granted through the:


•    exemption method;
•    foreign tax credit method; or
•    deduction method.

Dispute resolution
Where double taxation is not avoided by way of the methods noted above, the competent authorities may resolve the issue by way of mutual agreement procedure or arbitration.

Exchange of information
Another fundamental principle incorporated into DTAs relates to a C country’s right to obtain information on a taxpayer, in order to adequately protect its tax interests.  Many of Barbados’ treaties include, or are in the process of being amended to include, a relevant article pertaining to the exchange of information to meet OECD requirements.

Barbados has been proactive since its independence in 1966,  having DTAs in force with 37 countries (and another nine currently awaiting ratification or signature), 11 signed bilateral investment treaties and numerous tax information exchange agreements and conventions, as shown below. These bilateral and multilateral agreements facilitate both the elimination of double taxation, the protection of investments, and the mutual exchange of information. The Government of Barbados will continue to pursue a policy of identifying new countries which hold opportunities for the expansion of international business, trade and investment, in order to expand its treaty network, so as to better facilitate that expansion.


Written by Louisa Lewis-Ward, Tax Partner, KPMG; Source: Barbados International Finance & Business 2017



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