#BTEditorial – Dismantling of the offshore financial sector

As each day passes, the anxiety deepens over the latest attempt by the developed world to dismantle the global business sector of island nations like Barbados.

Let us call it for what it is. We in this region have created a hugely successful international financial services sector, built on offering competitive tax rates which attract global companies. Industrialised nations are not happy at the loss of billions of tax dollars, and they want to destroy the sector.

The European Union when it grew tired of providing financial and market support for former colonies in the Africa, Caribbean, and Pacific (ACP) region, to maintain their sugar and banana industries, preached incessantly, that we should stop our dependence of monocrops. That we needed to find niche areas in which we were competitive and diversify our economies.

With the push towards globalisation, where each country was expected to paddle its own canoe without the assistance of artificial support through subsidies, our export crops like sugar, bananas, and nutmeg began their slow demise as the main foreign exchange earners for small, developing countries like ours.

We tried to play by their rules. We developed the international business sector and increasingly became more dependent on the revenues it generated and the allied services it helped to boost.

It was recognized long ago that as much as countries like Barbados tried to regularise the industry, adhere to best practices, ensure that we were not a haven for tax evaders, it never prevented us from being labelled as tax havens and the home of shady companies and dishonest business operators.

Certainly, we are not arguing that the offshore business sector comprises only the squeaky clean, but it is wholly unsupported by evidence, that the sector is anything more than corporate entities seeking to leverage the tax obligations by domiciling in countries that offer competitive tax advantages.

We can be forgiven for oversimplifying the issue, but Jeff Bezos, Mark Zuckerberg, Elon Musk, Bill Gates, and Warren Buffet are not being hounded out of town because they paid less in personal income taxes than some middle-class families in the United States.

What these business titans have done is take advantage of the rules that allow them to leverage their tax obligations.

The point is Barbados has always sought to be a compliant member of the international financial services community, despite the decades-long onslaught by the overly aggressive European Union.

United States president Joe Biden’s home state of Delaware and others like Nevada, have long been regarded within the US, as “tax shelters”.

And while those in Barbados’ international business sector are forced to jump through all kinds of hoops and skip over ever-changing regulatory obstacles, “incorporation in Delaware affords companies numerous benefits”. Businesses registering there are not facing the uncertainty of those registering in Barbados.

Those corporate registering in Delaware do not have to disclose who their officers and directors are when they file documents in the state at the time of a company’s formation.

Furthermore, if the business does not conduct its operations in Delaware, the state’s corporate income tax may not apply. Instead of paying that income tax, those Delaware corporations pay a much lower franchise tax.

The same Democratic candidate, we in this region were hoping would be elected in the United States 2020 presidential elections, ironically, is now the first to deal our region its man-made economic blow.

As if the devastation caused by the COVID-19 pandemic were not enough, our ally in the White House led the charge to impose, unilaterally, a global minimum tax rate.

One wonders how President Biden intends to reconcile his global tax rate, while in his beloved state of Delaware’s incorporated companies pay no sales tax whether they are physically located in the state or not. There is no state corporate tax on goods or services; there is no corporate tax on interest or other investments that a Delaware holding company earns. And that is not the end of the tax exemptions.

When it comes to the controversial issue of corporate secrecy, there is shielding of identities and personal information of privately held corporate business owners from public records.

When business owners file incorporation papers in Biden’s Delaware, the name of the entity and the name and address of the registered agent are all that is required. Delaware does not even require the names and addresses of limited liability company members and managers to be made public.

Tne Group of 7 rich nations, led by Biden are set to impose a minimum tax rate of 15 per cent in a less than veiled move to destroy offshore financial centres. US Treasury Secretary Janet Yellen said it was an “historic” agreement on a global minimum tax that would “end the race to the bottom in corporate taxation and ensure fairness for the middle class and working people in the US and around the world”.

German finance minister, Olaf Scholz, said it was “very good news for tax justice and solidarity and bad news for tax havens”.

It would appear, developed nations prefer to see developing nations with begging bowls rather than competitive nations seeking financial independence.