The same reason why Barbados remains a white-listed jurisdiction according to both the OECD and the Group of Twenty (G-20) is, incredibly, precisely the same reason why the Global Forum of the OECD has concluded that Barbados is still not a transparent jurisdiction with respect to international tax co-operation.
Back in 2009 after the London Summit of G-20 Ministers a list of countries found to be ‘substantially compliant ‘Â (white-list); ‘almost compliant’ (grey list); and ‘not compliant’ (black list) was published. This ranking was based largely on the earlier work of the OECD on Harmful Taxation which in 2002 spawned the release on OECD press statement.
The release confirmed the following:
Barbados has transparent tax and regulatory systems and has in place a mechanism that enables it to engage in effective exchange of information
It has long-standing information exchange arrangements with other countries, which are found by its treaty partners to operate in an effective manner.
It is also willing to enter into tax information exchange arrangements with those OECD Member countries with which it currently does not have such arrangements.
It has in place established procedures with respect to transparency. Moreover, recent legislative changes made by Barbados have enhanced the transparency of its tax and regulatory rules.
It has along with the OECD acknowledged the importance of dialogue in addressing international tax issues and has played an important role in fostering such dialogue.
Two years after this state of affairs was recognized by the G-20, Barbados curiously finds itself unable to demonstrate, according to new OECD methodology endorsed by the Global Forum, a commitment to international standards of transparency and exchange of information for tax purposes.
Even as Barbados capitalized on what has been an unprecedented surge of interest by OECD and non-OECD countries in negotiating new tax treaties and up-dating existing ones to reflect the modern version of the exchange of information standard while providing greater opportunities for cross border movement of goods, services and investment, the country failed to achieve a passing grade under the new OECD/Global Forum methodology.
The detail of the findings of the Peer Review Group Phase I Assessment of Barbados’ regulatory and legal regime supporting transparency and exchange of tax information as adopted by the full membership of the Global Forum through its written procedure worthy of closer scrutiny.
First the report accepts that Barbados has spared no effort and at significant financial expense in seeking to apply a bilateral solution to the problem of multilaterialising an international norm in the absence of a multilateral instrument or body.
Indeed, where there is no international convention setting out the obligations of States in the area of transparency and exchange of tax information these obligations must be accepted on a bilateral basis — country by country.
Two instruments of tax diplomacy have been endorsed and utilized by the members of the G-20, OECD and the Global Forum to apply the standard — a special purpose vehicle called a tax information exchange agreement (TIEA) and a double taxation agreement which includes the 2008 version of the OECD Article 26 on tax information exchange.
Barbados, as one of a handful of independent small-state international business and financial services centres, has continued to pursue a policy of using tax treaties to enable the effective exchange of tax information with its treaty partners whilst supporting its international business brand.
This longstanding pillar of Barbados’ economic policy matrix has its antecedents not in the aftermath of the 2007 global financial melt-down but in the immediate post independence era when Barbados decided to diversify its economic base to embrace the export of services (financial and non-financial) from its shores.
As a result the orientation of Barbados and that of the international community was fortuitously fixed in the same direction and given to expression in an instrument already in use by Barbados’ economic policy makers.
Moreover, as a jurisdiction with a pre-existing tax treaty network, an income tax system and a history of exchange of tax information it was natural for Barbados to leverage this new found preoccupation of the international community to accelerate its tax treaty programme.
This has been done by Barbados to great effect. Since 2009 Barbados has concluded new tax treaties with Italy, Mexico, Panama, Portugal, Spain, Vietnam, Belgium and the Czech Republic and a new protocol with Canada has been agreed.
Each agreement complies with the OECD standard and once ratified will become part of Barbados’ legal and regulatory regime supporting transparency and tax information exchange.
How then is Barbados now placed in the most in-enviable position of being characterized as a domicile that is still not internationally compliant according to the Global Forum?
Quite simply, it is borne of the application of a methodology that seems to place a higher premium on form over substance.
On paper, it is true that Barbados does not yet have as part of its legal machinery the capacity to exchange tax information according to the 2008 OECD standard with a number of Global Forum members.
It is true that some OECD member states have approached Barbados to conclude a TIEA and on receipt of a request by Barbados to explore the alternative vehicle — a tax treaty — have steadfastly refused to engage in such a exchange.
This despite the fact that the reconstituted and enlarged Global Forum is to be a participatory democracy with designed to foster greater collaboration, dialogue and co-ordination in the area o international tax.
It is true that some of its existing treaties, though they currently provide a legal basis for exchange of information they do not now cover all aspects of the modern day practice of exchange of information for obvious reasons.
Importantly, it is also true the political agenda is fixated on the pursuit of TIEAs with countries who had previously used tax secrecy as a competitive tool.
Finally, it is true to say that as a tool of economic development tax treaties are always the subject of intense and critical scrutiny by legislative organs because of the wide ranging nature of their provisions and the great expectation that their implementation will bring to the economies of both Contracting Partners.
It is however patently incorrect to suggest that Barbados has not been at the fore-front of international efforts to rebuild the global financial system left in shambles because of the irresponsible and ineffective application of regulation to private sector entities not operating from countries like Barbados but from the shores of the countries who have now been given the OECD stamp of approval.
The designation is recently minted and easily achieved by the mere acquiesce by a State to a predetermined number of TIEAs.
This incongruity is magnified in circumstances where a country like Barbados with an unbroken record of exchanging tax information finds itself unable to move to the secondary assessment of its ‘practice’ of information exchange by the Global Forum.
The writer admits that the foregoing discourse has failed — abysmally – to reconcile what was from the outset clearly irreconcilable but takes comfort in the fact that instead what may have been achieved is to lay bare the source of the continuing danger to Barbados’ sustained success as an international business domicile.