The three years that Barbados has been forced to focus on demonstrating and defending its commitment to the new global rules on transparency and tax information exchange could have been better utilised enhancing the country’s competitiveness in the area of international business and financial services.
To be clear this preoccupation with avoiding becoming an international ‘pariah’ because of failure to meet G-20 standards designed to improve transparency and enhance bilateral tax cooperation was necessary and an exercise that the country could not have chosen to ‘opt-out’.
Although the OECD Global Forum has confirmed Barbados’ stellar credentials in this area from a policy perspective the second phase of analysis will begin during the first quarter of 2013. The country must now turn its attention to this analysis of its practical application of the rules enshrined in its tax treaties and domestic laws. This labour intensive exercise must also be undertaken with a view to securing a positive outcome first time round.
Without more however transparency credentials will not maintain or improve the island’s competitive advantage as an international financial centre. Indeed, the post-recession agenda of the G-20 has never been about increasing the competitiveness of offshore jurisdictions. It was and continues to be about achieving policy equivalency in the area of ‘secrecy’. Put differently is an attempt to remove secrecy from the conduct of the cross-border trade in financial services.
For this reason competitiveness is not a by-product of transparency though for jurisdictions like Barbados who provide treaty-based solutions to the problem of double taxation, the OECD’s endorsement of this type of agreement as a means of codifying the rules on tax information exchange, has been a boon to its ambitious negotiating agenda.
Conversely the use by onshore countries of the other OECD sanctioned agreement to apply the standard, namely, tax information exchange agreements, with zero tax countries, for whom as a settled matter of economic policy ‘secrecy’ is used to attract investment, threatens to significantly diminish Barbados’ competitiveness in one of its traditional source markets.
That said however treaties, like all other legislative products do not, without more, evidence a country’s competitiveness in the true sense of the word. Bilateral agreements setting out how countries will mitigate double taxation; prevent fiscal evasion; and protect private sector investments are for ‘taxing’ international financial domiciles the minimum requirements for profitable existence.
Like recognition for adherence to international norms, the increasingly standardization of the key benefits provided by tax treaties means that their pursuit is again, simply an exercise in policy equivalence and is not demonstrative of competitive advantage.
By the same token other proposed legislative products like private trust companies, foundations, an international trading facility, expanded categories of activity covered by the segregated cell legislation, and populating the list of prescribed services under the International Business Companies Act, to name just a few, are also minimum requirements for a country serious about maintaining its competitiveness in the provision of international business and financial services.
Properly understood, ‘competitiveness’ is a relational concept which assesses how one country compares to another involved in the same line of business in the efficient delivery of the products (legislative or otherwise) and services that have become associated with a modern financial services centre.
No international accolade related to the G-20 transparency agenda can supplant the basic indices that define the nature of a country’s competiveness. Indeed many countries that remain uninterested in abandoning secrecy remain competitive vis-à-vis their counterparts who steadfastly remain adverse to its practice.
International ‘right standing’ is important because it places a country on the list of potential investors. Successfully competing with the other countries also in ‘good standing’ depends on how good a job the country does of matching the customer’s expectation with customer experience.
Unfortunately over the past three years the shifting requirements for positive recognition by the G-20 and the OECD has so stretched the resources of the country that it has been unable to complete the work it had started in addressing the well-documents issues that threaten to undermine its competitive advantage.
The ‘standard-setting’ activity that is now the preoccupation of a number of new and existing international and regional inter-governmental bodies is unlikely to bate in the foreseeable future. Barbados must therefore be ready to secure the necessary policy equivalence in a manner and in a time frame that does no harm to our established reputation.
This however must not be the island’s singular focus.
The imperative to satisfy international best practice is part of the remit of any international financial centre interested its sustainability. What must equally engage its collective energies however is an unwavering commitment and pursuit of competitiveness which itself rests on how well the country satisfies its customers who provide the jobs, revenue and foreign currency needed to maintain the quality of life that all who reside in Barbados have come to expect.