In the movie Field of Dreams, actor Kevin Costner’s character builds a baseball diamond in the middle of a cornfield. His wife thinks he is crazy, but a mysterious voice keeps telling him, “If you build it they will come.”
And come they did.
Fifty years ago, when Barbados became an independent nation, the powers of the day took a similar approach in determining the country’s future: they decided to build a highly reputable international business and financial services centre in a small island known mostly for its sunshine, beautiful beaches and fields of sugar cane.
They put in place the legislation, tax structure, and suite of products that would attract foreign investors. Simply put, we built it and they came.
Today, more than 4,000 international business entities have chosen Barbados as the jurisdiction from which to conduct their business, benefitting from its low tax regime and no capital gains tax. And they keep coming at a rate of about 400 a year.
So why do they keep coming?
There is a combination of reasons, including political stability; Westminster style of government; legal framework grounded in English common law; educated workforce; ease of access; infrastructure; responsive new legislation; and so forth. The list goes on.
But at the end of the day, what really attract foreign investors to Barbados are the assurances, integrity and transparency established through the island’s unwavering commitment to Double Taxation Agreements (DTAs).
These DTAs provide investors with legal certainty and predictability when it comes to paying tax on their investment returns. They eliminate the problem of having to pay taxes twice on the same income, and the transparency involved discourages tax evasion. In essence, DTAs keep everything above-board and attract the type of investors Barbados wants.
But these DTAs provide other critical benefits. For example, investors in countries that have no such agreements between them can use ours to do business cross-border. In effect, through its DTAs Barbados opens up opportunities for investors by providing gateways to new markets.
[blockquote]Today, more than 4,000 international business entities have chosen Barbados as the jurisdiction from which to conduct their business, benefitting from its low tax regime and no capital gains tax. And they keep coming at a rate of about 400 a year.[/blockquote]
To these ends, from the very outset Barbados has focused intently on building a network of DTAs. This is the island’s preferred method of maintaining its reputation while growing its international business sector.
Today, that network consists of 27 ratified treaties, including one with CARICOM that covers 10 member countries. It gives Barbados global reach as an international business centre, stretching north into the USA, Canada and Cuba; south and west into Latin America, including, Mexico, Panama and Venezuela; east across the Atlantic Ocean to the UK, Europe and, increasingly, to Africa and the Middle East.
There are currently 37 countries within the network, and more treaties on the way. At least four are awaiting ratification – the United Arab Emirates, Rwanda, Portugal and Italy – while others are being negotiated.
These DTAs are not inert or merely decorative. Many of them are being used on a regular basis, and the relevant tax authorities recognize the benefits they provide. What is more, several DTAs have been updated by way of protocol since they were implemented. Working with its treaty partners, the island has always been willing to reconfigure DTA provisions in keeping with market changes.
In summary, the DTA structure and network is working well. But just as baseball diamonds need ongoing care and maintenance, so too do international financial services centres; in other words, Barbados still has work to do to make its DTA network even stronger and more valuable to investors.
The island has already been doing this through new legislation in response to global changes and customer feedback. A good example is recent legislation to enable incorporated cell companies. In addition, it has enhanced its DTA network by signing Bilateral Investment Treaties (BITS).
BITS provide an added level of assurance to investors by granting them most favoured nation treatment. Such treatment includes internationally recognized standards for compensation in the event of expropriation, procedures for dispute settlement, and the free transfer of capital and profits.
But there is more we can do. For example, we can strengthen the information exchange articles in our current treaties –and those under negotiation – to conform to the OECD’s Base Erosion and Profit Sharing (BEPS) initiative. This is not to say that Barbados’ DTA network has ignored BEPS in the past. In fact, many of Barbados’ treaty negotiations (both current and previous) have taken BEPS into account, especially where the treaty partner is a proponent of BEPS. This shows Barbados’ willingness to work with treaty partners to obtain the best outcome for all parties involved.
Barbados should also target some of the larger international financial centres as it expands its DTA network. Good places to start might be France and Germany, countries with which the island has already negotiated Tax Information Exchange Agreements (TIEAs).
And then, there are Japan and Russia, with whom negotiations are underway. DTAs with such jurisdictions would open new markets for investment into and through Barbados, but speed is of the essence.
In summary, Barbados has built an impressive active treaty network for a country of its size. This network has allowed the island to attract a multitude of international investors, to the envy of many other jurisdictions.
However, we must maintain it and make improvements when where we know they are necessary. If we keep building it, they will keep coming.