Local corporate taxpayers have been put on notice by Prime Minister Mia Mottley that they can expect a change in their corporation tax rate, after what seems to be a failed case against the planned introduction of a 15 per cent global minimum corporate tax rate for multinational corporations.
Effective January 1, 2019, the corporation tax rate in Barbados was lowered from 25 per cent to a sliding scale of between one and 5.5 per cent.
This means that companies making less than $1 million in taxable income were paying the 5.5 per cent, companies making more than $1 million but less than $20 million were paying three per cent, companies making more than $20 million but less than $30 million were paying a tax rate of 2.5 per cent, and companies making more than $30 million were paying one per cent.
Since the announcement by the Organisation for Economic Cooperation and Development (OECD) for a planned 15 per cent global minimum corporate tax rate, Barbados has been putting forward a case to see what approach could be taken, as officials expressed concern about the risk of losing businesses.
But in a clear indication that Barbados – who signed on to the international tax regime two years ago along with more than 130 other countries – will have to adapt the global minimum tax rate, Mottley also strongly hinted that changes will have to be made to the current low tax rate for local companies.
“What we were able to do is to create a bounty for all of the corporate tax [payers], small and larger companies in this country, and you got it at the very time you needed it the most – during COVID. So, you had some buffer there because of reduced payment on corporate taxes,” Mottley told the 84th Barbados Labour Party annual conference on Saturday evening.
“We cannot guarantee that going forward because of the global circumstances, and it will mean that if we try to do things that were too risky and too flashy, we will get blacklisted again,” she said.
“I will simply say this, if I have a disappointment it’s that our domestic corporate tax payers have preferred to keep their money more in the banks, and may well have to do with COVID coming in and people believing that now is not the time to invest. But if we don’t invest, we cannot grow and keep growing, and therefore I will speak to the country in full on that,” she promised.
Mottley, who recently visited Canada to discuss several matters with officials there, said the global business sector was a topic of discussion, as she acknowledged that most of Barbados’ global businesses are from that market.
The proposed 15 per cent global minimum corporate tax rate for companies with revenue above €750 million (BDS$1.6 billion), forms part of a two-pillar international tax reform agenda being led by the OECD.
According to that organisation, the move is to ensure that multinational enterprises pay their fair share of tax regardless of where they are headquartered or from where they operate.
It is expected that eligible multinational companies will start paying the global minimum tax rate from next year.
Mottley promised to address the issue further “in a few weeks’ time”. However, the prime minister expressed disappointment that the revenue being collected from local corporations was simply too low, accounting for just about 15 per cent of the overall corporation tax.
“We collected about $470 million [in total corporation tax] last year. When I was minister of economic development in 2007, we were collecting $520 million. You know why it dropped to rock bottom, because our relationships in the international business sector started to change, and the benefits we got from Canada … started to dwindle. What we now have, $400 million of the $470 million, comes from outside of Barbados. Now, that can’t continue just so,” said the prime minister.
She also acknowledged that Barbados stayed off the European Union’s so-called blacklist of non-cooperative jurisdictions for tax purposes, which came out last week. The next review is due in February next year.
“It looks as though we are finally facing a bright future and getting any possibility of blacklisting put behind us,” said Mottley, as she thanked those who have been instrumental in ensuring the country was taken off the list earlier this year and stayed off in the second review.
During her wide-ranging address, Mottley also indicated that she was awaiting a meeting between the Attorney General Dale Marshall and Minister of Energy and Business Senator Lisa Cummins along with the entity that was responsible for the highly touted digitisation of the Corporate Affairs and Intellectual Property Office (CAIPO).
“We have not seen the finish line as we had expected to do from that initiative,” reported Mottley.
Declaring that there had to be a transformation of doing business in Barbados, Mottley said within the next week, Cabinet was expected to receive a White Paper “for the establishment of an entity called Business Barbados, that will take the Corporate Affairs registry with the exception of intellectual property, subject to Cabinet’s approval, and put it into an independent entity that will also supplement it with business facilitators”.