Francoise Hendy, from her unique position as the jurisdiction's international treaties negotiator, examines Barbados' international business and financial services strategy.
Unlike a number of its Caribbean competitors for legitimate international business, Barbados continues to leverage its practice of international tax diplomacy to advance its economic development.
This brand of diplomacy for development is not a new mantra for Barbados. Indeed, from its birth as an independent nation forty-eight years ago, its leaders made it clear that this would characterise the nature and trajectory of its ambition on joining the international community of states. As a result, from inception Barbados’ international business and financial services strategy has sought to leverage its cordial relations to advance its economic fortunes.
This determination to be ‘friends to all and satellites of none’, as declared by Barbados’ then Prime Minister during the country’s first address to the United Nations General Assembly explains why Barbados has longstanding tax treaties not only with the United States, Canada and the United Kingdom; but also its agreements with China, Cuba and Venezuela.
Together these products of well-practiced tax diplomacy explain, in large measure, Barbados’ sustained competitiveness in light of other models of economic development which almost exclusively rely on domestic tinkering with corporate tax rates - usually on a downward trajectory.
Even in the face of the ‘voguish’ trends in the content of international tax diplomacy which seek to downplay the importance of full and comprehensive tax treaties in favour of the single-purpose Tax Information Exchange Agreements (TIEAs); Barbados has stuck to the plan.
It has done so at some cost to its reputation by opportunists who sought to equate this with an unwillingness to apply OECD-engineered and G20-sanctioned, norms on transparency and exchange of tax information.
Barbados spent much time and energy to correct oftentimes deliberate efforts to undermine the importance of tax diplomacy to jurisdictions whose business brand is grounded on the principal instruments of this type of state to state interaction, namely tax treaties.
Much was made of the fact that Barbados contributed little to the now 800 TIEAs now in place in response to the threat of sanction by the world’s largest economies. Barbados’ experience in these matters enabled the government to adopt and advocate the position that the way forward for the international tax reform agenda which is focused on increasing transparency and access to confidential taxpayer information, is to ensure that countries who have pledged to do so are able to maintain levels of economic activity within their country to fund the spiralling costs of compliance that comes with each iteration of the global standard.
Moreover, Barbados’ tax treaties have from inception contained language reflective of the prevailing exchange of information standard; and efforts to update agreements with its existing partners have continued apace since 2007.
Not satisfied with the pace of these efforts, the government introduced domestic legislation allowing it to apply the standard with existing treaty partners pending the negotiation of protocols to modernise existing agreements.
Some countries who were responsible for the content of the model TIEA insisted on concluding TIEAs with Barbados even as they admitted that there was no concern about their tax authorities’ inability to access information from Barbados; and perhaps even more instructive was their acknowledgement that their tax-payers were not actually doing business with Barbados.
Nonetheless Barbados did conclude TIEAs with France, South Africa, Germany and the Nordic countries. Earlier this year a TIEA was signed with Colombia. This agreement is however a precursor to tax treaty talks the discussion of which is already at an advanced stage. The TIEA ensures that Barbados is excluded from the Colombia’s list until the tax treaty is signed.
Barbados’ tax diplomacy programme has never been geared towards solutions which have now been proved inadequate to realise the wider ambition of the international community in relation to the prevention of tax evasion, aggressive tax avoidance and double non-taxation.
Barbados has always been of the view that TIEAs were not the solution to these problems but rather a hastily applied panacea. It is for this reason that Barbados has committed to signing the OECD Multilateral Convention on Mutual Assistance in the Collection of Taxes. This coupled with the agreed methodology to give practical effect to the exchanges of information contemplated by the Convention found in the Common Reporting Standard. This first attempt at a multilateral solution to a global issue, though not perfect is a start to addressing the complexities that accurately defines the interplay between protecting the privacy of tax-payers and lifting the shroud of obscurity that has been used by some to enhance their competitive advantage in the marketplace.
Not all have been in favour of the Multilateral Convention.
Bermuda continues to be opposed to applying the Convention and has recently vowed to adopt a register of ultimate beneficial owners - another non-treaty aspect of the transparency and information exchange agenda - when the United States and the United Kingdom do so.
Barbados has adopted a more measured response.
Others have suggested that adopting the Multilateral Convention will make it difficult for treaty jurisdictions like Barbados to interest new countries in concluding tax treaties. The rationale behind this proposition being that the near doubling of the Barbados tax treaty network at the start of the financial crisis was only as a result of a quid pro quo between countries who both needed to have legal mechanisms in place to exchange information ‘on request’; and so secure their good standing on the OECD whitelist.
It is of course true that since 2007 Barbados has concluded new treaties with Italy, Spain, Portugal, Luxembourg, the Netherlands, Iceland, Qatar, United Arab Emirates, Bahrain, Malaysia, Vietnam, Ghana, the Slovak Republic, San Marino, Mexico, Vietnam, Singapore. It is equally the case that these agreements all contain the updated version of the OECD article of the Exchange of Information.
Whatever the motivation to get to the negotiating table, the point is that these treaties rest not only on international regulatory imperatives but are born of a mutuality of business interests backstopped by a business model that makes sense for Barbados and its treaty partners.
This explains why even as the clamour for agreements that reflect the information ‘on request’ standard has abated with the adoption of ‘automatic’ exchanges as reflected in the Multilateral Convention Barbados treaty expansion continues apace.
Moreover, in recent months the geographical reach has now increasingly focused on the African continent. Indeed, the government has unveiled a new strategic programme of partnership and cooperative engagement with Africa building on existing linkages in other theatres of global concern.
To this end Barbados has concluded a new tax treaty with Rwanda, itself an emerging international business and financial services hub in East Africa. When signed, it will add to Barbados existing treaties in Africa with the Seychelles, Mauritius, Botswana and its treaty with Ghana which is awaiting ratification.
Already the response to Barbados’ proposals for tax treaty negotiations with governments in the fastest growing markets in Africa have been so positive that Barbados’ treaty negotiating agenda over the next eighteen months will have a strong orientation towards Africa.
Francoise Hendy
Françoise Hendy is an international treaty negotiator and attorney-at-law specialising in international economic law and foreign investment law. Schooled at the University of London and in the Caribbean, she was appointed Barbados’ chief tax and investment treaty negotiator in 2003 and since then Françoise has led a multi-disciplinary team that has concluded over 20 tax treaties and several investment agreements.
Currently based in London at the Barbados High Commission, Françoise continues to negotiate treaties while lending her considerable experience and expertise to the government in the policy and regulatory issues affecting Offshore Business and Financial Centres gained during her eight years as Director of International Business and Financial Services in the Barbados Ministry of International Business and International Transport.