Minister of Commerce, International Business and Small Business Development Donville Inniss says he is prepared to give some financial services and international business companies the boot if that is what it takes to protect Barbados’ reputation. With the sector facing increasing scrutiny and mounting threats of international sanction, Inniss said it was important to maintain Barbados’ good name as a preferred jurisdiction in which
to do business.
His comments came in light of tax reforms from the Organization for Economic Cooperation and Development (OECD), the latest of which is a multilateral convention to prevent base erosion and profit shifting (BEPS).
BEPS, considered a harmful tax practice, is defined by the OECD as tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations.
International business and financial services jurisdictions also have to grapple with ring-fencing rules, a practice in which companies financially separate portions of their assets or profits for various reasons without necessarily being operated as a separate entity.
Addressing the recent What Businesses need to Know about Base Erosion and Profit Shifting and Double Taxation Treaties seminar at the Savannah Hotel, Inniss said in relation to the new tax rules local authorities were engaging with the OECD forum “almost on a bi-weekly basis looking at templates provided and determine what changes need to be made in Barbados regime regarding the sector.
“So I throw a caution out to you that it will not be business a usual,” Inniss told industry representatives, including officials of the Barbados International Business Association, the Central Bank and the Financial Services Commission.
Stating that Barbados was still addressing issues that were raised before BEPS, Inniss said for too long “we have been talking about the issues” and now was the time for decisive action “in terms of what the new international business and financial services sector will look like.
“I caution you that it will not be perhaps what it was ten or 15 years ago and driven a lot by external regime. So the issue of ring-fencing is a significant one,” he said, pointing out that Barbados was making efforts to strengthen its regulatory regime while ensuring greater transparency.
“We can’t leave any stone unturned when it comes to compliance issues, when it comes to risk analysis and the ability to know your customer,” he said.
“At the end of the day, if we are to remain in the international business and financial services industry we cannot compromise on a strong regulatory environment. It will create some discomfort to some clients, but at the end of the day we want business of substance that can fly under any radar and do no harm to this jurisdiction. So if we have to ask some companies to leave our domicile we will do so in the most diplomatic manner. If it doesn’t work through diplomacy we kick your butt through the door and ask you to go, but suffice to say, this industry is too critical for us to compromise in this area,” warned Inniss.
Acknowledging that the financial services sector was also under scrutiny by the European Union, Inniss said Barbados was not prepared to throw its hands in the air, even while adding that BEPS was “good for Barbados”.
“Now is the time we must say to the world, ‘come here because we are a domicile of substances, we have competent professionals here to run your business, we have office space you can operate from, we have flights in and out of Barbados [and] we have a banking system that works. Don’t come here just to put a name on your door and that is it’. So one of the solutions we have to wrap our mind around quickly is our definition of substance in our context in Barbados. And it may mean that some of the companies that are not looking to offer substance may have to find another domicile to go to because it is better for us to have 100 companies offering substance in a domicile than 1,000 that are not really doing anything of significance,” Inniss said.
The minister questioned why Invest Barbados, the agency tasked with promoting the sector, did not fall under the ministry of international business, while expressing concern about the way the sector was being marketed, insisting the current approach must change.
“I have been contending for years that our marketing efforts as a jurisdiction should not continued to be centered around the lower tax rate. We may very well be shooting ourselves in the foot and doing harm to us as a domicile if our marketing efforts are focused on most exclusively ‘come to Barbados because we offer a very low tax rate’. Barbados offers much more than that tax rate,” said Inniss.