It is possible that for all the right reasons, this will be a watershed year for Barbados. It is equally possible that, for all the wrong reasons, the next 12 months will long be remembered. In fact, it would seem beyond dispute that the narrative of Barbados’ economic fortunes as recounted by future historians will depend heavily on what befalls the country’s international business and financial services sector; and more importantly our response.
Happily, the principles responsible for our phenomenal post-independence growth are exactly the same required to positively distinguish 2014.
Unfortunately, some of these fundamentals have been forgotten in the din of public and private commentary by those knowledgeable, and not so knowledgeable; but which remains a natural accompaniment of a protracted period of recession.
Other precepts have been dismissed as irrelevant for 21st century governance because of political expedience or inexperience. While many more languish in the collective memories of the pioneers of our country’s international business and financial services sector. Still others, though useful have yet to be updated, modified and pressed into action in reply to present day difficulties.
The foregoing is set out as context for the following discussion about three key predictions for the international tax reform agenda in 2014; and how our response to these developments will determine whether our hope for rapid economic recapitalisation on the ‘back’ of Barbados’ international business and financial services sector is properly founded.
Barbados is a low-tax, treaty-based, Common Law jurisdiction with its competitive advantage based on:
- a steadily growing network of market-ready, geographically diverse tax and investment treaties;
- its customer-driven suite of tax and non-tax incentives for business development , wealth management and corporate head-quartering; and
- the availability of a sophisticated, trainable and largely indigenous work-force.
Often overlooked however – though consistently identified as top-of-mind for investors – is the bedrock of Barbados’ business brand; which continues to be its social, political and economic stability.
1. Tax treaty negotiation is increasingly going to depend less on levering the global ‘on request’ standard for exchanging confidential tax-payer information managed by the OECD on behalf of the G20; and which Barbados has used with great success over the past five years.
Instead, Barbados’ sustained tax treaty expansion programme will rely more on direct political contact and context with a greater role for the country’s overseas representatives identifying and pursuing areas of mutual interest with potential treaty partners, which in turn will provide opportunities for relations to be established using tax diplomacy in a manner that does not only offer the ‘quid pro quo’ of access to tax payer information.
2. There will be more coordinated and decisive action against low tax jurisdictions considered to be tax havens and blacklisted as such by the European Union and its members. In practice this will mean that the EU will demand that its international partners – including its tax treaty partners – respect the same minimum standards of good governance in taxation as is required in the EU.
Recommendations which will inform this new thrust include:
i. repackaging the concept of ‘harmful taxation’ as ‘fair taxation’ to recapture taxes and tax bases from competitive low tax jurisdictions,
ii. the adoption of new assessment criteria by the OECD Global Forum based on the introduction of a global automatic exchange of tax information standard set out in the OECD Model Convention on Mutual Assistance in the Collection of Taxes, which is generally viewed as a mutilateralised US FATCA;
iii. the systematic review or termination of existing tax treaties found to encourage double non-taxation; and
iv. the introduction of supplementary disclosure requirements for EU economic operators involved with tax havens, however ultimately defined by the EU.
3. Country brand demonstration will outstrip brand identification and will depend less and less on having more salespersons ‘on the streets’. For international business and financial services centres, like Barbados, who are not in the zero-tax end-game, the challenge is going to be to find ways to emphasize to existing and potential customers, who are increasing investment wary and will come from the emerging markets of Latin America, the Middle East and Asia, that Barbados is in touch with their needs and is not an expensive luxury that they could afford to be without.
Expensive but sub-optimum results will not attract or retain customers – even longstanding, loyal ones whom we assume are so enamoured with the island that this will trump the imperative of ‘value for money’.
How will it All Unfold?
This forecast for the year ahead, perhaps more than ever, makes the point that the success of the sector and by extension Barbados’ economic upturn requires economic, political and social leadership that is responsive and responsible; advocacy and lobbying that is coordinated, clear and timely; regulation, in practice and in theory, that is right-sized and right-timed; marketing and promotion that it consistent, directed and cost-effective; and alliance-building that is increasingly focussed on non-traditional partners within existing international bodies.
In the end, confidence in the future of Barbados’ economic recovery – what we define as optimism – is warranted not only by recollections of what was achieved in the past but where there is a recognition that success is not secured by happenstance but the deliberate, decisive and determined execution of agreed action.