On November 10, 2010 Canada’s Revenue Authority (CRA) confirmed that Barbados insurance companies including Exempt Insurance Companies (EIC) and Qualifying Insurance Companies (QIC) are “liable to tax” under paragraph IV (1) of the 1980 Barbados-Canada Double Taxation Agreement and can generate exempt earnings under Part LIX of Canada’s Income Tax Regulations.
The CRA ruled that if a dividend is received before February 26, 2007 by a Canadian corporation from an EIC that is a foreign affiliate of the corporation and the dividend was assessed as being paid out of the taxable surplus of the affiliate, and there is a valid objection or outstanding appeal regarding the treatment of the dividend, the issue will be resolved in-line with its revised interpretation. Further, if the dividend was received on or after February 26, 2007 and the dividend was reported or assessed as being paid out of the taxable surplus of the affiliate, the corporation will be permitted to amend the return for the relevant taxation year provided that the amendment to the return is requested within the time period in which an assessment or reassessment for the year can be made.
“Today’s interpretation brings to a satisfactory conclusion a matter that had given rise to an extended period of uncertainty among Canadian investors in Barbados’ international insurance industry. Not only does it quell concerns that Canada’s negotiation of Tax Information Exchange Agreements with our regional competitors might provide Canadian foreign affiliates in those jurisdictions with a competitive advantage over Barbados, it demonstrates and reinforces Barbados’ commitment to its existing clients conducting business in Barbados. The CRA interpretation secures for Canadian foreign affiliates operating in our international insurance industry the same benefit that now accrues to other affiliates operating in Barbados. Importantly, the detail of the interpretation provides a positive, business-friendly outcome for earnings derived by the affiliates in Barbados for years prior to 2007” said Senator Darcy Boyce, Minister in the Office of the Prime Minister, with responsibility for Invest Barbados, Telecommunications, Energy and Immigration of Barbados.