TAX NEWS - June 2010

Barbados: Just don't call us a tax haven

The government of Barbados would like to clear up some misconceptions, apparently widely held in this country, about the difference between low tax jurisdictions and tax havens.

Faced with huge debts from the financial crisis, governments around the world, including Canada, are scrambling to maximize tax collection, and these days they're focusing particular attention on tax haven countries where unscrupulous individuals and companies are believed to have stashed massive amounts of wealth in a bid to avoid taxes.

That's fine and well, but the trouble is, according to Darcy Boyce, Minister of State for Barbados, in the rush to punish the Liechtensteins and Switzerlands of the world, perfectly legitimate low tax jurisdictions such as Barbados are getting hit as well, which is bad for the global economy.

Speaking to reporters in Toronto Wednesday, Mr. Boyce explained that low tax jurisdictions such as Barbados that cater to foreign companies -- he referred to them as "international financial centres" or IFCs -- help to boost business activity globally by making their clients more competitive and therefore able to grow faster.

It's no mystery why the government of Barbados chose to send Mr. Boyce to Toronto: About 75% of the country's international financial community is made up of Canadians, according the Canadian government.

Most of the big banks have offices there along with a whole range of others, including shipping companies and at least one drug maker.

According to Mr. Boyce, by setting up in Barbados they lower their tax bill, but they also enjoy other benefits such as "freedom from exchange controls" and safeguarding assets from the impact of litigation.

"In contrast, tax secrecy havens have the potential to be used by investors for opaque purposes -- that could include tax evasion and money laundering," he said.

However, many Canadian politicians appear to have missed the distinction and in the wake of recent publicity around high-profile tax evasion cases involving banks in Liechtenstein and Switzerland, there has been a move by Canadian officials to try to clamp down on use of all offshore centres, both good and bad.

In a bid to counter moves by OECD and other international groups, Barbados has been taking steps to increase transparency and beef up financial regulation. Companies that come looking for secrecy or a place to hide money are quickly shown the door, he said.

However, when asked how many Canadian firms are doing business in Barbados, Mr. Boyce declined.

"I don't know," he said.

Beyond identifying some of the Canadian sectors such as banking and insurance that have bases there, he declined to name any individual companies.