In addition to a change in the corporate tax rate, Barbados must continue to offer value-added in order to attract new global businesses and keep existing ones.
This position is being put forward by President of the Barbados International Business Association (BIBA) Jamar Arthur-Selman, in light of recent news from Prime Minister Mia Mottley that changes will have to be made to the corporation tax rate next year.
“For more than a year and a half, BIBA has been stressing in public and private forums that a two-pronged approach is necessary for Barbados given that the age of over-reliance on low tax rates has gone,” he said.
“In essence, while suitable corporate tax rates are necessary, the other main driver of business to Barbados must continue to be a value-added model whereby companies see that there is value added to several layers of their business by setting up in Barbados.
“In our current state where a lower tax rate is an added benefit but not the sole goal of global businesses in Barbados, we have to continue on the path to focusing on a future where business facilitation is so excellent, business opportunities are so plentiful, products and services are so widely ranged, and the skill set of our workforce so diverse that whatever the tax rate, it becomes a ‘cherry on top’ of a much bigger pie for global businesses,” he explained.
While addressing the Barbados Labour Party’s 84th annual conference last weekend, Mottley gave a clear indication that Barbados will have to implement the Organisation for Economic Cooperation and Development (OECD) proposed 15 per cent global minimum corporate tax rate.
According to the OECD, the proposed global tax rate, which is to be implemented by countries next year, is to ensure that multinational enterprises pay their fair share of taxes, regardless of where they are headquartered or from where they operate. It will be applied to companies with revenue above BDS$1.6 million.
In 2019, there was a convergence of the local and global tax rates in Barbados, with the rate for local firms being lowered from 25 per cent to a range of between 1 and 5.5 per cent, in line with global businesses that were previously paying as much as 2.5 per cent.
“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,” said Mottley.
In reaction to the news, Arthur-Selman told Barbados TODAY that BIBA was satisfied that the decision by the government was being taken after more than two years of discussions with consultants, advisors, stakeholders and a task force formed to address the issue.
“Therefore, if this is indeed the most viable option, we look forward to discussing and understanding further why the conclusion was reached,” he said, adding that he was certain the decision would not have been taken lightly.
Arthur-Selman said one might consider a climb in the tax rate that was not considered too “low” by international standards, would be a factor in “reducing the level of constant regulatory pressure which the island faces and sometimes fails to meet”.
He noted that some global double taxation treaty partners had begun the process of renegotiating treaties with Barbados in light of what was to come, while there were others who had taken the independent decision to blacklist countries with tax rates lower than a certain percentage, which can have several negative consequences.
“Norway and the Netherlands are two such countries that come to mind, and one would therefore anticipate that a higher tax rate, but not too high, would give Barbados leverage in new treaty negotiations and allow existing treaty relationships to be reaffirmed quickly and such minor negative listings to be removed,” Arthur-Selman explained.
Acknowledging that the global business sector contributes significantly to government’s revenue, he said he looked forward to continued consultation with the Mottley administration.
“In short, therefore, if an increase in the tax rate allows us to be in a better position internationally and is not a deterrent to global business of substance here who pay most of the corporate tax, it could be a solution.
“This is, of course, assuming the rate goes to a reasonable level for global businesses and local businesses are not stifled and will still pay a much lower rate than the previous 25 per cent, and global businesses are not deterred by paying a much higher rate than the current 5.5 per cent; then there may be a happy medium,” the BIBA head said.
President of the Barbados Private Sector Association (BPSA) Trisha Tannis told Barbados TODAY the association’s members were looking forward to the engagement with the government to find out exactly how any new corporate tax rates would be applied.
“What we are waiting for, though, is how it is going to be applied and whether there are any thresholds. So, those are the kinds of details we would need to be given by the government before we can have a statement on what we would anticipate the impact would be,” she said. (MM)