A year ago, the release of the so-called Panama Papers provided an unprecedented exposé of various schemes — legal and in some cases not so legal — that are used primarily by the world’s rich and famous to secretly move money from one jurisdiction to another around the world. It’s done with the aim of concealing the true extent of their wealth in order to limit their tax liability, especially in their home countries.
The Panama Papers investigation, which centred on just over 11 million confidential documents leaked from Panama-based offshore law firm Mossack Fonseca, was undertaken by the International Consortium of Investigative Journalists (ICIJ).
The effect was increased global attention on the activities of offshore financial centres which were portrayed in a generally negative light, prompting increased calls within official circles in developed countries for a crackdown on such activities.
This past weekend, the published findings of another ICIJ investigation, which can be considered a follow-up to the Panama Papers, has provided further revelations about the activities of offshore financial centres. The release of the so-called Paradise Papers, based on a leak from the law firm of Appleby and covering the period from 1950 to 2016, highlighted details from corporate registries managed by authorities in 19 countries, including many in the Caribbean.
Barbados is included on the list which also mentions Antigua and Barbuda, Aruba, the Bahamas, Bermuda, Cayman Islands, Cook Islands, Dominica, Grenada, Labuan, Lebanon, Malta, Marshall Islands, St Kitts and Nevis, St Lucia, St Vincent, Samoa, Trinidad and Tobago, and Vanuatu. Predictably, there will be more negative fallout and Barbados and other offshore domiciles can expect to come under additional pressure from authorities in developed countries who are looking to close existing loopholes to maximize tax revenue.
In what was the first official reaction, European Union officials had scheduled a meeting for today to bring forward a discussion on plans for a uniform tax havens’ blacklist. One EU official said the Paradise Papers revelations had “put renewed emphasis on the work the European Commission is doing to fight tax avoidance”. EU countries were hoping to reach an agreement on a blacklist for tax havens by the end of this year but the latest revelations have prompted the discussion to be brought forward.
Barbados, which has consistently maintained that it is not a tax haven, is quite familiar with struggling against EU attempts at blacklisting. In fact, during a recent meeting with a US Congressional delegation, Prime Minister Freundel Stuart sought to enlist their support to help clear up misconceptions about Barbados being a tax haven. He emphasized that Barbados was a clean, well regulated, low tax jurisdiction.
“Because companies pay low taxes here, they repatriate large profits to their jurisdictions and that money is invested there, so there is a win-win situation,” he explained, citing the significant contribution of the financial services sector to the economy. However, despite Government’s efforts, the characterization of Barbados as a tax haven just keeps resurfacing, which suggests that developed countries are either not convinced or are painting Barbados with the same brush as countries which are not entirely above board.
It is increasingly looking, however, like the writing may already be on the wall for offshore financial centres in the Caribbean and elsewhere – at least in the present form.
If anything, the latest revelations are only likely to add more fuel to the fire. While it would be unfortunate to see the sector’s demise at this time, given the challenges our economy is facing, especially with regard to inflows of foreign exchange, it would be unwise for our authorities not to begin to plan effectively for the possibility that the industry could eventually disappear.
Indeed, due to shrinkage resulting from the loss of some firms, the contribution of the sector has declined significantly in recent years.
At the same time, it would be unwise to simply throw our hands in the air. Barbados needs to embark on an aggressive lobbying effort, especially in Canada where the bulk of offshore business has traditionally come from.
The aim should be to connect with key policymakers at the federal government level to ensure that they have all the relevant facts on Barbados so that they are well informed and can be persuaded against taking decisions which could be detrimental to our economic interests. Mobilizing Barbadians across Canada to have a word with their members of parliament on the issue can also be of significant benefit in this regard. Every effort must be made to safeguard this important industry.