[ E-mail This Page ]

Developing Barbados as an E-Commerce Jurisdiction
Marcus Hatch, Partner, PricewaterhouseCoopers, Barbados

The rules are changing - and that's fine!

It takes a strong stomach to engage in strategic planning these days - whatever industry you happen to be in. Trying to figure out where to go with your business in the internet age, faced with rapidly developing technologies in computing and telecommunications - which most of us understand only superficially - and a whole new ball-game in terms of international trade can be overwhelming, especially given all the other demands of running a business in an environment which, in most countries, is becoming more and more heavily regulated.

Barbados, along with every other country with a significant international financial services industry, is also faced with fundamental changes in the global rules which govern, officially or unofficially, the provision of financial services. The political debate will no doubt heighten over the issue of how these global rules are developed and implemented. While it is generally recognized that much of the recent activity by the OECD with their "Harmful Tax Competition" report and by the Financial Action Task Force and the Financial Stability Forum is driven by the noble motivation to control money-laundering and tax evasion by wealthy individuals, there is nevertheless a genuine concern by many involved in the more established international business jurisdictions that the process of developing and implementing the new rules is significantly flawed due to the lack of representation by such jurisdictions in these "global" organizations. There is also a suspicion in many quarters that less noble motives may be at play in some of these initiatives to the extent that they may have the effect of restricting genuine competition for global capital.

What does appear certain, however, is that the introduction of more stringent international guidelines on the provision of international financial services is good news for Barbados. Those who developed many years ago the initial legislation on which the industry in Barbados has been based saw an opportunity to develop international business in Barbados without the island being a "tax haven" in the traditional sense. The attraction of Barbados has always been its strong and expanding network of tax treaties, the availability of high quality professional services, a good business infrastructure, advanced telecommunications and the genuine reliability and transparency of all aspects of the regulation of business on the island, whether domestic or international. Those who seek anonymity or the absence of information exchange agreements between regulatory bodies in their international business dealings have never found Barbados to be attractive. The emergence in recent times of new international business jurisdictions with inappropriate legislation and weak regulatory environments has therefore been a significant concern for Barbados, especially where those other jurisdictions are in the Caribbean. As such, any improvement in the operating environment in those jurisdictions which results from the OECD and other initiatives will help to alleviate the concerns within the international business community of Barbados that activities in other jurisdictions may impact negatively on us all.

While those involved in the international financial services industry watch these regulatory developments unfold, many business leaders around the world continue to struggle with an entirely different matter - the development of an e-business strategy for their company. Initially, most turned to their technology advisors, seeking to gain a better understanding of what is possible and at what price. More and more, however, international tax advisors are being brought into these discussions at an early stage to answer quite different questions - where should we base our e-business operations? and how should these operations be structured to be tax-efficient?

Not surprisingly, Barbados has been receiving a significant amount of attention from those seeking answers to the above questions. What they are excited to find is that the Government of Barbados, fully recognizing the opportunities, has already made a significant commitment to the development of e-business on the island.

The Electronic Transactions Act 2000, drawn along the lines of the UNCITRAL Model Law, seeks to establish the necessary legal environment for the processing of electronic transactions, addressing such issues as the legal recognition of electronic records, the formation and validity of contracts, certification of electronic signatures, encryption, data protection, the liabilities of intermediaries, etc. Government policy seeks to attract international e-business companies and to further diversify the economy through the establishment of new businesses providing significant employment opportunities.

Barbados is of course not alone in seeking to attract international e-business. However, some of the practical advantages of Barbados over other traditional territories are becoming more apparent as new investors seek a jurisdiction where commercial property and rental homes are available at reasonable prices and they have access to a pool of skilled and creative labour. Although the current global shortage of information technology professionals means that any e-business must compete aggressively for talented resources, the fact that Barbados is now home to a number of software development companies is an important factor to many investors.

Ultimately, however, for many e-business investors the decision to establish operations in Barbados is driven by the availability of double taxation agreements which allow companies organized under the laws of a signatory to such an agreement the ability to benefit from certain favourable tax treatments. Of critical importance in an e-business environment is the concept of "permanent establishment". For example, in the absence of a treaty, there is a degree of uncertainty for a non-US based company over what constitutes "doing business" in the US and what might create a permanent establishment in the US - and thus exposure to US taxation. A company resident in Barbados, however, may look to the US/Barbados treaty and arrange its affairs so that it does not have a permanent establishment in the US and thereby avoid US tax on its trading income.

The interaction of Barbados' tax treaties with domestic tax law of other countries also provides unique opportunities. A Barbadian IBC with a Canadian parent, for example, can earn active business income in Barbados which is taxed at no more than 2 1/2% and can repatriate that income to its Canadian parent without any Canadian tax cost. This has proven to be a compelling business case for Canadian e-business investors.

The Government of Barbados has adopted an aggressive telecommunications policy which seeks to provide the environment necessary for e-business to flourish. Enhanced bandwidth, reduced prices and the end of the Cable & Wireless monopoly will all play an important role in allowing this exciting new industry to succeed. New rules for a new age - and that's fine.

(Taken from Business Barbados 2001 Edition: The Premier International Business & Investment Publication - Pages 68,69,70)