Barbados is mounting a case against the introduction of a global minimum corporate tax rate that would see the island having to almost triple its current rate and lose its status as a low-tax jurisdiction.
However, Minister of International Business Ronald Toppin, who suggested the move is another case of wealthier nations shifting the goal post, says the country will need the support of other low-tax jurisdictions, including those in the Caribbean, if it has any chance of being successful in its fight.
“We’re expecting some sort of unity in this. Barbados can’t push back on this alone and get anywhere, so there will have to be the mounting of some serious awareness among states in similar positions so that we can all speak in a unified voice on this,” he said in the House of Assembly on Tuesday morning as he introduced the Companies (Economic Substance) (Amendment) Bill, 2021, which seeks to make clear that partnerships are included among those entities that must conduct their core, income-generating activities in Barbados in order to benefit from the low tax rate here.
Barbados’ current corporate tax rate is 5.5 per cent. However, finance leaders from the Group of 7 richest democratic countries (G7) agreed earlier this month to back a new global minimum rate of at least 15 per cent that companies would have to pay regardless of where their headquarters are located.
Toppin told Parliament that local authorities were not caught off guard by the pronouncement and were already working on a strategic response.
“We have known about this for some time, and this is engaging the attention of the top economic, financial and tax brains of this country and also those stationed overseas as well, who are all playing a part in looking at this issue to mount as best a response as we can,” he said.
“This is one of those instances where might tends to be right, unfortunately, and where small states end up being tossed around, because in this proposal you have one of the greats contradictions that there could ever be. When countries such as Barbados became low-tax jurisdictions, the very thing that they said is ‘that is ok, you can be a low-tax jurisdiction but to maintain that status, we will leave you alone if you enact economic substance legislation’. Economic substance legislation was their creature. They are the ones who said that!
“The argument that we intend to use – that we have already started to use – to push back on this, is precisely what I said just now: that you told us to enact economic substance [legislation]…so in implementing this minimum global tax rate you have to give us some credit for that, you have to give us what we call an economic substance carve-out, you have to give us some recognition,” Toppin insisted.
The International Business Minister said that so far, there has been some acknowledgment of Barbados’ position.
“They seem to be tossing a little something saying that ‘yes, we recognize that, we will look at it’. They’re looking at it, but what it will end up being, in the end, is anyone’s guess at this point,” he said.
According to Toppin, based on the current position being taken, it would not be beneficial for low-tax jurisdictions to insist on their current rate unless they are given some leeway from the G7 nations.
“This is what the current position seems to be: If you decide, ‘I’m going to stick to my 5.5 per cent’ and charge an entity here 5.5 per cent, in its country of citizenship or where it came from, it will have to pay the difference, so it’s going to pay 15 per cent in any case, so when you charge less you’re not going to make anything,” he explained. “You’re now going to have to go to pursue the arduous task again of differentiating yourself from other jurisdictions, all of whom will have to be charging 15 per cent.”
However, Minister Toppin said, nothing has yet been finalized. He said more details are expected by the end of July.
At the same time, he stressed the importance of unity among low-tax jurisdictions, since “this may or may not be…a blacklisting issue”.
“I do not think it would be that type of issue so far, but in the past, I must say that there has not been a lot of success with trying to get to speak with a regional voice on these things,” Toppin said, recalling that such harmony was absent in 2018 when Barbados and others were threatened with blacklisting.
“When you are blacklisted you have no friends. You have a set of vultures who fly around waiting to see when [you’re] dead to come down and pounce and eat away at your flesh. Even some people in your own jurisdiction that rally with you all the time – in the form of some service providers – that work with you all the time; they know your standards, they know your level of commitment to integrity, they know all of that, but just a single pronouncement of the word blacklisting changes their perception of you,” he added.
“You don’t have any friends when you get on a blacklist; you feel very much alone. So, I thank God that right now the Ministry of International Business has Barbados on no blacklist; none whatsoever.” (DP)