by Marlon Madden
All is not lost as Barbados adjusts to the introduction of a single global minimum corporate tax rate of 15 percent.
That pledge from Avinash Persaud, a prominent economist and special envoy for Prime Minister Mia Mottley, who pointed out that Barbados had several options to ensure international business corporations did not migrate due to the new tax regime.
According to the Organization for Economic Co-operation and Development (OECD), the two-pillar tax plan is intended to “reform international tax rules and ensure that multinational companies pay an appropriate share of tax wherever they operate”.
The OECD stated in the first pillar that it seeks a “fairer distribution of profits and taxation rights between countries in relation to the largest multinational companies, including digital companies”.
The second pillar aims to set a lower limit or rate below which countries do not set their corporate tax rates. It does this by introducing a global minimum corporate tax rate that countries can use to protect their tax bases.
Persaud pointed out that Barbados was not taken by surprise, assuring that the government was planning the new rule by developing political responses.
He insisted that Barbados was “not in bad shape” due to the pending tax regime and stated that the increased taxes companies would pay would result in more revenue for the government that could then be used to run the same companies through offers to keep grants.
Persaud said that this was only one option: “Our approach is to see how we can make this work”.
He recently spoke on an online forum – A Dialogue on the Global Minimum Tax Rate and Barbados – moderated by the Barbados International Business Association (BIBA) and Invest Barbados.
“First we will argue and agitate in the tent for a substance-based carve-out. This is what we’ve spent the last decade or so developing, ”said Persaud.
Persaud said that the local authorities had carefully examined “several Plan B’s”, said Persaud, although there was still no clear option given the need for consultation and discussion, but some discussions had already taken place with the OECD and other stakeholders.
However, he announced that one way would be to offer grants to companies that are spending on research and development in Barbados to encourage them to stay.
“I think today the world is competing for grants, the rich countries for grants. . .
We haven’t played this game before because we didn’t have the revenue to do it, but the 1 to 15 percent tax rate can very well provide us with the funds that allow us to provide the grants that make us competitive.
That would be part of Plan B if we couldn’t get a broader substance carve-out, ”he explained.
Barbados currently has a corporate tax rate of between 1 percent and 5.5 percent based on taxable income on a tiered basis.
Calling the proposed 15 percent minimum worldwide tax rate “saga”, Persaud said there have been “more twists and turns than Games of Thrones” over the years when it comes to global tax matters.
He said there was “no point in being against the new tax rate” and stated that “we’ve all seen if these lists they put us on create a lot of trouble getting out of here.” [and] that people do not want to be in our jurisdiction when we are on a list as an uncooperative member ”.
“So if we can’t go on and we’re out, we won’t gain anything and we won’t have lost anything. As it progresses and we are viewed as outside, we will lose something – we will be viewed and portrayed as sluggish and uncooperative jurisdiction, and they will cause us problems.
“So we always felt that we would join the consensus,” said Persaud as he tried to explain why Barbados agreed to the new global tax plan.
He said Barbados will “continue to work inside the camp to get a better system,” adding that while the main focus was on substance-based outsourcing, there are other B plans.
“We are also looking into plan B if the substance release is either insufficient or is removed. These Plan B’s offer opportunities for this because we’ve got to a point where we would basically raise our taxes instead of lowering them.
“So we can envision sales-neutral or sales-positive ways in which we can remain very competitive,” said Persaud, who has decided not to give any details about the plans yet. It is expected to take several months for the new tax plan to be implemented.