EDITORIAL

Blacklisting: Self-interest or cowardice?

“It is excellent to have a giant’s strength, but it is tyrannous to use it like a giant” – Measure for Measure (1623)

Dr Don Marshall, the Director of the Sir Arthur Lewis Institute of Social and Economic Research at the Cave Hill Campus of the University of the West Indies, is right. As he is quoted in last Tuesday’s edition of this newspaper, neither the Organisation for Economic Co-operation and Development (OECD) nor the Council of the European Union (EU) has “the basis of international law to do what they are doing nor do they have any supranational authority to impose on countries the kinds of adjustments they are insisting on”.

But Dr Marshall ought to be aware that geopolitical clout is not now, nor has ever been, entirely a matter of strict international law. Rather, it appears to turn on some arcane concept of status in the jungle-like environment of global relations where the rule is survival of the strongest and fittest. Higher status is attained by a complex combination of population and land size, economic wealth and military strength.

In such a context, while the OECD and EU, each comprising powerful states, rank fairly high in the geopolitical pecking order, the Caribbean region, consisting mainly of microstates, most of which are economically disadvantaged and of little or no military might, rank much lower.

But what makes the recent blacklisting by the EU all the more indigestible for us is that Barbados, only recently, altered its tax system to accommodate a demand from the OECD and to rebut or pre-empt any presumption of us being classified as a tax haven. After all, a tax haven is defined as “a country that offers foreign individuals and businesses little or no tax liability in a politically and economically static environment”. Also, according to the relevant literature, “tax havens share limited or no financial information with foreign tax authorities and do not require residency or business presence for individuals and businesses to benefit from their tax policies”.

By equalising the tax rates payable by local and international corporations, we thereby satisfied our desired classification of being a “low tax” jurisdiction, and given that we are parties to a significant number of double taxation treaties with some of the very states that comprise the membership of these two international organisations, we should not fairly be regarded as being secret or less than co-operative.

According to a press release from the European Commission, their most recent assessment was based on three criteria; tax transparency, good governance and real economic activity and the existence of a zero corporate tax rate. It is not immediately clear to us that on these criteria that Barbados should have been deemed non-compliant.

Dr Marshall, in the same report, noted that the recent action related directly to “an idea that cosmopolitan states were being denied their fair share of corporate tax revenue because their corporations naturally migrate to jurisdictions with lower tax rates”. He rubbishes this notion on the basis that “we are competitive because of the quality platform we offer to high net worth [entities]”.

It appears to us that there is an option open to these foreign jurisdictions; either to lower their corporate tax rates sufficiently to make local investment attractive or to punish those corporations that choose to have a presence in low tax jurisdictions. The recourse of blacklisting relatively weak jurisdictions seems both unfair and clumsy. Might the failure to employ the latter alternative above be based on a fear of corporate flight?

Barbados Advocate

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