'Substance' is a characteristic that has become consistently linked to the Barbados international business brand. It is a well-known attribute of a mature economic sector capable of providing downstream and upstream benefits, particularly in small state economies.
'Substance' is manifested in several ways, but principally in employment opportunities, quality of work life, salary scale and, oftentimes, the ability to move from one geographical location to another because the entity of 'substance' has offices or operations across the globe.
'Substance', as an index of a mature, reputable and responsible international business and financial services centre, is one that successive governments of Barbados have insisted on because of the propensity of capital flight, which is often endemic, especially with small open economies. Substantive activities are highly prized by governments because they present tangible expressions of why a particular path of economic activity and its associated incentives have been granted to a national, regional or international entity.
Increasingly, 'substance' has also become a defence against accusations of activities by commercial players or individuals operating in an international business and financial services centre, which are alleged to be harmful to the overly transparent conduct of international financial affairs. To claim 'substance', as an answer to the mischaracterisation of a country's export of financial and other business services, is not one than can be made without concrete evidence of such a claim. Fortunately, 'substance' is something that admits a number of illustrations.
Among the various examples of 'substance' upon which successive Barbados governments have relied, has been the use of small state diplomacy in relation to bilateral treaty-making in the area of international tax and investment. Indeed, even when the negotiation of tax treaties was placed on the back-burner by the Organisation for Economic Co-operation and Development's (OECD's) Global Forum on Transparency and Tax Information Exchange, in favour of boilerplate agreements which offered no more than a mechanism to exchange confidential taxpayer information, this diplomatic approach meant that while others were contributing to the more than 800 special purpose agreements, which largely failed to promote 'substance', Barbados' treaty agenda continued apace.
Barbados is set to add 10 new tax treaties to its existing network, namely treaties with Ghana, Italy, Portugal, Rwanda, the Slovak Republic and United Arab Emirates that are awaiting ratification, and new agreements with Belgium, Cyprus, Malaysia, and Vietnam that are awaiting signature.
Barbados already has treaties in force with Austria, Bahrain, Botswana, Canada, the Caribbean Community (CARICOM), China, Cuba, Czech Republic, Finland, Iceland, Luxembourg, Malta, Mauritius, Republic of Mexico, the Netherlands, Norway, Panama, Qatar, San Marino, Republic of Seychelles, Singapore, Spain, Sweden, Switzerland, the UK, the USA and Venezuela. The CARICOM treaty covers 10 countries - Antigua and Barbuda, Belize, Dominica, Grenada, Guyana, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, as well as Trinidad and Tobago.
As Barbados advances its 'Africa Engagement Strategy', negotiations for new treaties with Cameroon, Kenya, Morocco and Tanzania are expected to commence.
Tax treaty 'substance' is manifest because it pre-supposes taxable economic activity by companies across a range of activities, including goods, services and intellectual property and a range of professional activities. Moreover, it covers activities by entertainers, athletics, students, teachers, professors, business trainees and apprentices. This diversity of subjects of tax treaties underscores the depth of 'substance' that gives rise to an agreement to negotiate a tax treaty in the first place. It also points to the expectation that economic activity will be created or enhanced by the very existence of these products of diplomacy.
Given the global agenda geared towards dealing with the issues surrounding base erosion and profit shifting, commonly referred to as BEPS, and driven by the OECD, it is interesting to note that a direct correlation between 'substance' and the existence of tax treaties has been made. Whilst this alone will not insulate a treaty-based jurisdiction from the rigors of new global disciplines that are certain to be a by-product of the OECD work programme, which has been endorsed by the G-20, 'substance' certainly provides validation of Barbados' approach to the provision of legitimate, responsible and sustainable international business and finance services.
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