In March 2019 Barbados was placed on the European Union’s blacklist of the world tax havens due to lax tax rules, which the EU deemed at risk of facilitating tax evasion in other countries. This blacklisting meant that Barbados and several other listed Caribbean islands would face trade, financial and other sanctions because of their so-called financial privacy and “failure” to penalize corporate tax evasion. Weeks after the island was placed on the blacklist, it was removed and added to the so-called grey list.
According to Remeur (2018) “in the EU, the process of adopting a common list of non-cooperative tax jurisdictions...was initiated as part of efforts to further good tax governance, and its external dimension. On 5 December 2017, the Council adopted a first common list resulting from the assessment of third countries against distinctive criteria. Pursuing the assessment process, the Council has updated the list on the basis of commitments received, while also reviewing countries that had not yet been assessed”.
But what constitutes a tax haven and why are they so controversial?
There is no generally agreed and consistent definition of what a tax haven is. The term dominates discourses around issues of ‘low’ or ‘zero taxation’, fictitious residences and tax secrecy. However, Picciotto (1992) states that, “virtually any country might be a `haven’ in relation to another”.
That said, there are a number of common concepts according to the study from the European Parliamentary Research Service. Generally, a tax haven allows people or organizations to escape the laws, rules and regulations of their jurisdictions by paying little or lower rates of tax than they would usually pay in their countries of origin, e.g. income tax. Around the world, there are more than 60 tax havens that offer a range of offshore financial incentives and have favorable tax laws that allow persons to access low- or no-tax rates.
These include: the Netherlands, Bermuda, Luxembourg, Ireland, Singapore, the Cayman Islands and, to some tax justice campaigners, Barbados. Campaigners argue that trillions of dollars are being concealed in offshore sanctuaries that have lenient financial regulation and offer easy tax escapes.
In an effort to combat these contentious havens, several international organizations and agencies have created blacklists of noncompliant jurisdictions. However, these controversial blacklists often exclude large nations such as the USA and even Switzerland, while highlighting smaller nations such as Barbados. Ironically Switzerland, which is known globally for its banking secrecy, was excluded from the EU’s 2018 blacklist that Barbados was temporarily placed on.
The Organization for Economic Cooperation and Development (OECD) has also created blacklists of uncooperative tax havens. The OECD black list was supplemented by a grey list and a white list, according to commitments made by nations and their level of implementation. To avoid being blacklisted, countries must sign onto a framework, which is known as the Common Reporting Standard (CRS). The CRS allows for the automatic exchange of banking information by mutual notification of assets held by non-citizens. Barbados, having signed on to the CRS, features on the grey list as it is being monitored for continued compliance and fulfillment of their obligations.
Is Barbados not in fact a tax haven?
Barbados features a well-developed offshore financial sector providing offshore banking, incorporation of offshore corporations, and exempt insurance. It is categorized as a “low-tax” environment for businesses incorporated in Barbados. Taxes on these companies generally range from 1% to 2%, and as the profits earned increase the rate decreases. International business companies are permitted to import the machinery and equipment into Barbados free from certain
taxes and customs duties. Quoting Britain’s Tax Justice Network (TJN), “Barbados accounts for less than 1 per cent of the global market for offshore financial services, making it a small player compared with other secrecy jurisdictions”.
Following a 26th position on the TJN’s global list of Financial Secrecy Index -- a combination of a secrecy score and a scale weighting based on its share of the global market for offshore financial services -- in 2018 Barbados improved in ranking to 48th out of 112. It is now considered among the more transparent and less guarded in their financial transactions. This upgraded score indicates the progress made by the Government and partner associations in offering satisfactory financial transparency and dissuading illegal financial flows, including those stemming from tax evasion and avoidance practices, corrupt practices and criminal activities.
The world’s top offenders according to the TJN include Switzerland, Canada, Luxembourg and the USA (ranked 2nd with a secrecy score of 59.8). Unlike the USA, Barbados has committed to addressing EU concerns and has been moved to the so-called grey list of countries “still under EU watch for their tax practices...giving them more time to be fully compliant”.
Despite the advancements and changes to address deficiencies, CARICOM member states and associate members have continued to be added to lists of tax havens. In March 2019, CARICOM issued statement noted “the renewed attack on its member states’ economic prospects under the guise of a ‘good governance strategy’ is beginning to border on anti- competitive behaviour targeted at the decimation of the international business and financial services sector in the Caribbean”.
While the latter view may be taken out of context and interpreted as a political statement, it is now evident that Barbados as a “tax haven” is farcical. With fiscal transparency metrics exceeding a large number of legislations, Barbados’s ranking in the middle of Britain’s TJN list of Financial Secrecy demonstrates there are a large number of countries which better qualify for the term.
In conclusion, since Barbados continues to take the steps required by the OECD, there should be little doubt that this country no longer associates with the privileges of being a tax haven.
Comments