Country-by-Country Reporting Multilateral Competent Authority Agreement (CbC MCAA)
On 23 December 2021, the Revenue Commissioner, as the designated competent authority of Barbados, executed the CbC MCAA and lodged the required notifications with the OECD.
Country-by-Country (CbC) reporting
Barbados has entered into CbC reporting as part of the Base Erosion and Profit Shifting (BEPS) Action Plan set forth by the OECD. With the goal of promoting transparency and accuracy in reporting, CbC reporting requires MNEs to include detailed financial and tax information relating to the global allocation of their income and taxes, among other indicators of economic activity.
The Income Tax (Country-by-Country Reporting) Act, 2021-27 came into effect on 31 December 2021 and is the domestic, legal, and administrative framework to impose and enforce CbC reporting requirements on in-scope MNEs in Barbados. Under the Act, MNEs with total consolidated group revenue of more than USD 850 million, as reflected in their consolidated financial statements, are now required to prepare and submit a report to the Barbados Revenue Authority. Barbados' competent authority will annually exchange, on an automatic basis, the CbC report received from each reporting entity that is resident for tax purposes in Barbados with all such other competent authorities of jurisdictions with respect to which Barbados has an agreement in effect and in which, on the basis of the information in the CbC report, one or more constituent entities of the multinational group of the reporting entity are either resident for tax purposes or are subject to tax with respect to the business carried out through a Barbados PE.
CbC reporting is in effect for fiscal years beginning on or after 1 January 2021. The due date for reporting is 12 months after the fiscal year-end, and notification is required no later than the last day of the reporting fiscal year.
Constituent entities of an MNE group that are resident in Barbados must submit CbC notifications as well as CbC reports to ensure compliance with sections 4 and 5 of the Income Tax (Country-By-Country Reporting) Act, 2021-27 (the Act).
Any constituent entity that is resident for income tax purposes in Barbados must notify the Barbados Revenue Authority, whether it is the ultimate parent entity or the surrogate parent entity of the MNE group, no later than the last day of the reporting fiscal year of the MNE group. Where a constituent entity of an MNE group that is resident for tax purposes in Barbados is not the ultimate parent entity nor the surrogate parent entity, it must notify the competent authority of the identity and tax residence of the reporting entity, no later than the last day of the reporting fiscal year of the MNE group.
CbC reports must be filed within 12 months after the end of the fiscal year of the ultimate parent. MNE groups with an ultimate parent located outside of Barbados may be required to file the report locally in Barbados in circumstances where the CbC report would not be automatically exchanged with the Barbados Revenue Authority. There is a penalty of BBD 10,000 for failure to comply with the filing requirements.
Barbados, in common with a number of other jurisdictions, was required by the European Union (EU) Code of Conduct Group on Business Taxation to introduce economic substance requirements for companies and partnerships that are tax resident on the island. As a result, Barbados has introduced economic substance legislation for accounting periods beginning on or after 1 January 2020. Barbados tax resident companies and partnerships carrying on relevant activities will be required to meet an economic substance test.
Relevant activities are defined as any of the following businesses:
- Fund management
- Finance and leasing
- Holding company
- Intellectual property
- Distribution and service centre
There are financial penalties in the case of failure to meet the economic substance test of up to BBD 300,000. After failing to meet the economic substance test for two consecutive years, the Director of International Business may issue an order that the company be struck off the register of companies. There is provision for appeal against penalty determinations.
United States (US) Foreign Account Tax Compliance Act (FATCA)
On 17 November 2014, the US Treasury and Barbados signed and released an intergovernmental agreement (IGA). The regulations to the Income Tax Act to allow for automatic exchange of information were enacted on 3 September 2015, and the IGA entered into force on 25 September 2015.
Multilateral Convention on Mutual Administrative Assistance in Tax Matters
Barbados has signed and ratified the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which entered into force, in respect of Barbados, on 1 November 2016 and for taxable periods beginning after 2017. Under the convention, Barbados will exchange tax information based on OECD standards, but is not required to collect taxes on behalf of another country or provide assistance in the service of related documents.
Common Reporting Standard (CRS)
In November 2014, the G20 countries endorsed a new CRS for automatic exchange of information developed by the OECD. Under the CRS, foreign tax authorities will provide information to the Barbados Revenue Authority relating to financial accounts in their jurisdictions held by Barbadian residents. The Barbados Revenue Authority will, on a reciprocal basis, provide corresponding information to the foreign tax authorities on accounts held by residents of their jurisdiction in Barbados.
The CRS in Barbados is effective from 1 January 2017. However, due to a delay in finalising the logistics in order to successfully fulfil their reporting obligations, financial institutions were required to report the relevant 2018 information by 31 July 2019. As of 31 December 2017, Barbadian financial institutions must have procedures to identify accounts held by residents of any country other than Barbados and to report the required information to the Barbados Revenue Authority.
Inclusive Framework (IF) on Base Erosion and Profit Shifting (BEPS)
On 4 July 2017, Barbados joined the IF on BEPS, becoming the 101st jurisdiction to do so. By joining the IF, Barbados will work on creating an equal footing with all other IF members on the implementation of the BEPS package and on developing further standards to address the remaining BEPS issues. As a signatory to the IF, Barbados has committed to implementing minimum standards related to:
- preferential regimes, including exchange of tax rulings (Action 5)
- treaty abuse (Action 6)
- CbC reporting to tax authorities allied to wider transfer pricing documentation in Action 13, and
- improved mutual agreement procedures (MAP) for resolving disputes (Action 14).
Further to the OECD's Harmful Tax Practices - 2018 Progress Report on Preferential Regimes, Barbados has abolished the following regimes effective 1 January 2019:
- International financial services.
- Exempt insurance.
- Qualifying insurance companies.
- International trusts.
- Credit for foreign currency earnings/credit for overseas project for services.
In addition, the shipping regime was determined to not be harmful, and all ring-fencing provisions were removed and no grandfathering was provided.
Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (Multilateral Instrument or MLI)
On 24 January 2018, Barbados signed the OECD BEPS Multilateral Convention to update the existing network of bilateral treaties and reduce opportunities for tax avoidance by multinational enterprises. The ratification instrument was deposited on 21 December 2020, and it will enter into force on 1 April 2021.
Tax information exchange agreements (TIEAs)
TIEAs provide for the exchange of information on tax matters. TIEAs with Denmark, the Faroe Islands, Greenland, South Africa, and the United States are in force. The TIEA with Colombia is awaiting ratification; and TIEAs with France and Germany have been initialled and are awaiting signature.
Bilateral investment treaties (BITs)
Barbados has entered into BITs with Canada, China, Cuba, Germany, Italy, Mauritius, Switzerland, the United Kingdom, and Venezuela. BITs with Ghana and the Belgium/Luxembourg Economic Union (BLEU) await ratification.
BITs typically cover the following:
- Investments of every kind.
- National and most favoured nation (MFN) treatment.
- Compensation for losses owing to war, revolution, state of national emergency, revolt, riot, etc. to be no less favourable than that for residents.
- Expropriation, providing for compensation equal to market value.
- Unrestricted transfer of investments and returns.
- Settlement of disputes, either between one state and nationals or companies of the other state, or between the two states themselves.