Barbados began establishing a series of bilateral income tax treaties years ago and now has more favorable prospects for growth and investment than many of its counterparts in the Caribbean, Bruce Zagaris, a partner at Berliner Corcoran & Rowe in Washington, said on April 28.
Other small eastern Caribbean countries have signed few (if any) income tax treaties or tax information exchange agreements, and the OECD included those countries on its April 2 gray list of tax havens.
Barbados is the only small Caribbean country on the OECD’s white list of countries that comply with OECD tax information exchange standards, according to panelists at the seventh annual OffshoreAlert Financial Due Diligence Conference in Miami Beach, April 26-28.
“Barbados is very unique in terms of its approach to international financial services, in that it has slowly and carefully developed financial services based on the treaty network” and has not tried to distinguish itself as a secrecy jurisdiction, Zagaris said.
Most of Barbados’ many TIEAs are linked to its income tax treaty network, Zagaris said. “Barbados believes that if it engages in tax information exchange and tax enforcement cooperation, it should get some benefits in return,” he said, referring to beneficial income tax treaties.
Barbados’ tax treaties with the United States and Canada have been helpful in terms of its international financial services for years, Zagaris said. In recent years, however, its investment and income tax agreements with China and Venezuela have been “enormously important,” he noted.
“I think in the coming years you’ll see that its recent treaty with Mexico, and also its income tax and investment treaty with Cuba, are going to be important,” Zagaris said.
Barbados’ tax treaty network will have another benefit that should improve its long-term economic prospects, he said.
The European Union signs economic partnership agreements (EPAs) with African, Caribbean, and Pacific countries to establish free trade areas between the European Union and those countries. A regional group made up of the Caribbean Community and the Dominican Republic (the CARIFORUM group) has already signed an EPA with the European Union.
Because Barbados has a good tax and investment treaty network with EU member states, “you’re going to see Barbados used a lot, both by EU countries that want to invest in the Caribbean Community and . . . by other countries like Brazil” that want to use the Caribbean Community to do things in the EU, Zagaris said.
St. Vincent and the Grenadines
Sharda R. Sinanan-Bollers, executive director of the International Financial Services Authority for St. Vincent and the Grenadines (SVG), said most small Eastern Caribbean countries are less optimistic than Barbados about their future investment and economic prospects.
The inclusion on the OECD gray list of the emerging Caribbean domiciles of SVG, Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, and the Turks and Caicos Islands, along with the four major Caribbean financial centers of the Bahamas, Bermuda, the British Virgin Islands, and the Cayman Islands, has dampened optimism even more.
With the exception of Barbados, those jurisdictions “share the commonality of a category 2 designation,” Sinanan-Bollers said, referring to the OECD list, “and I must say that having spoken to some of my regional counterparts, we all share that same sort of ominous feeling and the same level of discomfort, to some extent, when we think about this category 2 listing — which we find akin to a category 2 hurricane listing.”
Sinanan-Bollers said mutual fund, insurance, and banking activity in SVG is suffering a significant slowdown as a result of the global economic crisis. Local banks have also suffered the consequences of making investments in what were previously “well known and reputable financial institutions around the world which have failed or are failing,” she added.
Sinanan-Bollers said SVG intends to explore the possibility of entering into TIEAs to move off the OECD gray list. To date, she said, SVG has attempted to enter into only one TIEA, and that effort was unsuccessful.
“Since St. Vincent and the Grenadines will be exploring establishing TIEAs with the OECD countries, we’re particularly pleased to hear Mr. Owens say that these countries will be receptive to such arrangements,” she said, referring to comments made the previous day by Jeffrey Owens , director of the OECD Centre on Tax Policy and Administration.