The Barbados International Business Association (BIBA) has reacted to concerns arising out of a recent report by the Organization for Economic Cooperation and Development (OECD).
In its Harmful Tax Practices – 2017 Progress Report on Preferential Regimes, the OECD noted that Barbados was in the process of making amendments. However, it raised concerns that the island’s financing and leasing regimes had “potentially harmful features”, based on ring-fencing, which is the practice of transferring assets from one destination to another, usually through the use of offshore financing, for tax avoidance purposes.
This is one of the areas covered by the OECD in its action plan to curb Base Erosion and Profit Shifting (BEPS) worldwide. In fact, BEPS 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.
In Barbados’ case, the OECD specifically pointed out that its credit for foreign currency earnings/credit for overseas project of services regime was potentially harmful “on account of ring-fencing”.
“Additional information on ring-fencing within the regime was received from Barbados after September 2017 and this will be further considered,” it said in the report released last October.
The OECD also said that in terms of its distribution centre and service centre regime, Barbados’ Fiscal Incentives Act was “out of scope”, while its shipping regime was “under review”.
But in an update today, the OECD said the island continued to make progress in delivering the international standard on BEPS Action 5, pointing out that it had committed since the October report to amending its offensive regimes.
“In a ministerial statement, Barbados committed to amend these regimes within the FHTP’s [Forum on Harmful tax Practices] agreed timelines and in accordance with the criteria of the FHTP. The inclusive framework therefore agreed to update the conclusions . . . to ‘in the process of being amended,’” the OECD said on Thursday.
However, the ongoing changes have created uncertainty for some service providers and investors in the local international business sector with BIBA assuring today that there was no need to fear the closure of businesses as the revisions were merely designed to satisfy the requirements of the OECD while ensuring the viability of the domestic sector.
“The Barbados International Business Association (BIBA) wishes to acknowledge and address the speculations, rumours and misinformed statements that the Barbados international business companies are being ‘closed down’. It is true that the OECD has established global standards to achieve tax transparency and fairness in tax systems, which will require Barbados to make some revisions to its international business regime,” it said.
However, said BIBA, “over the past few months, Government has engaged and continues to engage BIBA, other strategic partners, and stakeholders soliciting feedback and comments on the regimes’ revisions.
“BIBA has been given the assurance that a team representing the international business sector will have the opportunity to engage in the critical discussions needed to determine the nature of the proposed amendments and to review and comment on associated legislative drafting,” the statement said, adding that the sector remained sustainable and competitive.