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The Organisation for Economic Cooperation and Development (OECD) has successfully engaged most countries to examine and engage in tax reforms, which if implemented and expanded to all taxpaying companies could be revolutionary. Coming out of these discussions there are fifteen action items which countries are required to implement.[1]Of these action items four of them are minimum standards. This means that they will be  subject to peer review and countries would therefore be monitored for the quick implementation and the sustainability of these action items.

BARBADOS MUST MEET FOUR MINIMUM STANDARDS

The first of the four minimum standards is  Harmful Tax Practices. The OECD’s first global initiative in addressing its Harmful Tax Practices occurred around 1998 and Caribbean countries are familiar with the hostile environment created by the OECD in targeting them and other small countries. After engaging in its own research which it published in 2023/2024, the OECD now recognises that many of the countries with low effective tax rates are in jurisdictions with nominally high tax rates.  The second, the Prevention of Tax Treaty Abuse is linked to the prevention of harmful tax practices since the use of treaties is a feature of international tax planning along with jurisdictions with low tax rates. While the OECD may still wish to accept that individuals have the right to engage in tax planning for the best tax and business result, they would add that some have gone too far. There are certain transactions which are considered aggressive tax planning. 

The third Minimum Standard, Country by Country Reporting is essential to the OECD Two Pillar Solution which Barbados is implementing. All large multinational enterprises are required to prepare a country by country report with aggregate data on the global allocation of income, profit, taxes paid and economic activity among tax jurisdictions in which they operate. Finally, the Mutual Agreement Procedure seeks to improve the resolution of tax-related disputes between jurisdictions. This is critical because in the event that multinationals find the new system too cumbersome, they could very well derail it.

BUDGETARY TAX PROPOSALS

It is within this international context that the Budget of May 18, 2024 was delivered. Two of the strategies which were identified for growth were reviewing tax structures and new investment funds and secondly modernising  the Barbados tax system. 

The 9% tax rate, the top up tax to a maximum of 15% (15% is the global minimum tax rate) was expressed as a policy that would secure Barbados’ reputation with international partners. 

CORPORATE TAX REFORMS 

One will recall that on November 7, 2023 the Government announced its implementation of the OECD GLOBE Rules indicating that Barbados would introduce a 9% tax across the board with a few exceptions.  There was also a promise of new legislation. Corporation Top-up Tax Bill 2023 and an Income Tax (Amendment) (No.) Bill 2023 are awaiting approval. 

INVESTMENT FUNDS

Government is of the view that the job tax credit, the research and development credit (OECD concessions to developing countries) the 4.5% tax for certain intellectual property would facilitate job rich growth. This is seen as the environment that would encourage investment funds where tax neutrality would be guaranteed for investors. Government has also announced the introduction of new transfer pricing rules and the amendment of existing tax treaties. 

BARBADOS MEETING OECD REQUIREMENTS

One will note here that according to the OECD Barbados has already signed off on the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting and it came into effect on April 1, 2021. There is certainly quite a significant amount of work for Government officials coming out of these proposals. 

The OECD records Barbados’ achievements to date as (i) Participating in the Inclusive Framework on BEPS Membership (ii) Participating in the Two-Pillar Solution to address the Tax Challenges arising from the digitaisation of the economy (iii) The current regime is considered not to be harmful (iv) Exchange of information on tax rulings seemed to be in good order as they were reviewed and there were no recommendations (v) The legal framework for country by country reporting and exchange of information was in place and activated (vi) The dispute resolution mechanism was reviewed and recommendations were made (vii) the multilateral instrument is in force.

[1] https://www.oecd.org/tax/beps/beps-actions/