Barbados finally joins global tax plan

As the Group of 7 developed nations pushes the world towards a singular, regulated tax rate, the Organisation for Economic Cooperation and Development (OECD) has got Barbados to sign on to a new tax agreement that will likely result in increased taxes for companies registered here.

According to a statement from the Paris, France headquarters of the OECD, on Thursday, Barbados joined “the two-pillar plan to reform the international taxation rules and ensure that multinational enterprises pay a fair share of tax wherever they operate”.

The island joined 132 other countries and jurisdictions participating in the agreement to establish international tax reforms based on a two-pillar package.

After holding out, the island has finally agreed to the plan and is bringing the OECD closer to getting all 139 countries to ink the global tax plan.

Six nations have still not acceded to the plan. They are Ireland, Kenya, Nigeria, Sri Lanka, Hungary, and Estonia.

In Pillar One, the OECD aims to achieve what it describes as a “fairer distribution of profits and taxing rights among countries with respect to the largest Multinational Enterprises, including digital companies”.

Pillar One also aims to “re-allocate some taxing rights” over multinational enterprises from their home countries, which are usually developed nations, to the markets where they have business activities and earn profits, regardless of whether firms have a physical presence there or do not.

It is expected that this agreement will likely erode the attractiveness of jurisdictions like Barbados, which offer competitively lower tax rates than the home countries of these companies.

In Pillar Two, the agreement seeks to establish a floor, or a rate below which countries will not set their corporate income tax rates. This will be executed through the introduction of a global minimum corporate tax rate that countries can use to protect their tax bases.

According to a statement from the OECD: “This two-pillar package is the outcome of negotiations co-ordinated by the OECD for much of the last decade and aims to ensure that large multinational enterprises pay tax where they operate and earn profits, while adding much-needed certainty and stability to the international tax system.”

The OECD added: “The two-pillar solution contains a number of points on which members of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) must still agree on details.

“In addition, a small number of the Inclusive Framework’s 139 members have not signed on to these proposals. The deal will be finalised in October 2021, complete with an implementation plan to develop model legislation, guidance and a multilateral treaty in 2022, with implementation from 2023.”

In response to OECD complaints that international financial centres like Barbados were unfairly operating a two-tier tax system, the Mottley administration lowered the corporate tax rate for all companies, removing any distinction between local and international businesses.

Despite the move to tax convergence, developed nations are still not satisfied that they are benefiting from enough tax retention by these international companies and have shifted their attention to creating a global minimum tax rate to which all countries must agree to impose. 

The plan was one of the major outcomes from United States President Joe Biden’s first meetings with members of the G7 industrialised nations. (IMC1)