BY DAVID JESSOP— The Caribbean has just 18 congressional working days from Sunday, September 20 to try to have the U.S. Congress address an act naming 17 Caribbean nations as “tax havens”. If passed without amendment, it could have the effect of reputationally damaging the countries concerned with unpredictable trade, financial, and economic consequences.

Under the terms of the U.S. Constitution, Washington D.C. is able to govern its local affairs but has to submit its legislation for the agreement of Congress. This provision, which has its origins dating back to 1788, grants the U.S. legislature exclusive jurisdiction over D.C. in “all cases whatsoever” in order to provide for the maintenance and safety of the capital. This means that in practice any act passed by the Federal District has to be sent to Congress for oversight by committees of both houses. In the case of budgetary bills, there is a period of 30 working days during which “active approval” is required.

Budget Support Act
This August, the District’s 2015 Budget Support Act was approved by the Mayor of Washington, D.C., Muriel Bowser, and sent to Congress for consideration. Unlike previous bills that listed criteria defining a tax haven without identifying specific jurisdictions, the present bill names 39 nations and territories, 17 of which are in the Caribbean. These are: Anguilla, Antigua and Barbuda, Aruba, the Bahamas, Barbados, Belize, the British Virgin Islands, the Cayman Islands, Dominica, Grenada, Montserrat, the islands formerly constituting the Netherlands Antilles, St. Kitts and Nevis, St, Lucia, St. Vincent and the Grenadines, the Turks and Caicos Islands, and the U.S. Virgin Islands.

The named countries are described as having: no effective tax (or a nominal tax on relevant income), laws and practices that prevent the exchange of tax information with other governments, lack of transparency, a tax regime that is favourable for tax avoidance, and other characteristics.

The Act highlights international jurisdictions Washington D.C. considers to be used by local businesses and individuals trying to avoid paying tax locally. Although the numbers are probably quite small, the approach raises important matters of principle.

The list has its origin in similar legislation already in place in Oregon and Montana based on erroneous lists, but the fundamental difference in the case of the District of Columbia is that its legislation would be approved by Congress.

According to the international accounting firm Deloitte, other states including Kentucky, Maine, Massachusetts, and New Hampshire are also currently considering similar tax haven proposals. An online overview for their clients tellingly suggests: “taxpayers with current international operations and those considering international expansion should monitor the status of the above-referenced legislative proposals and others that may arise, as these proposals could potentially impact the tax base and apportionment factors of a water’s edge filing group”.

This firm’s advice suggests that many U.S. corporations and entities that have passed such legislation should consider avoiding the named jurisdictions in the Caribbean or elsewhere as they are tax havens.

This is happening despite the fact that the named states in CARICOM have worked hard to comply with the requirements of the Global Forum on international tax matters, as well as with the Organisation for Cooperation in Economic Development (OECD) and the Financial Action Task Force, so that CARICOM member states will no longer be legally defined as a tax haven. Moreover, many Caribbean states now have in place Tax Information Exchange Agreements with the U.S., and cooperate with the U.S. Internal Revenue Service through the U.S. Foreign Account Tax Compliance Act, better known as FATCA.

As Antigua’s Prime Minister, Gaston Browne recently observed, U.S. government agencies now have all the information they could possibly need to satisfy themselves that CARICOM jurisdictions are not tax havens. According to him, Washington D.C. is “ill-informed”. The list “is as harmful to our jurisdictions as it is unjust. It will scare away U.S. investors, and it continues a pattern of smearing the reputations of our financial services industry”.

More recently, Antigua’s ambassador to the U.S. has been making representations to Congress, observing that the Act could cause U.S. investors to stay away from his country. The Ambassador had also been hoping to meet with the Chief Financial Officer of Washington D.C., but it seems that this public official is not prepared to address, in person, key questions such as: why there was no prior contact with the U.S. Treasury or the Federal authorities; why Antigua or the other countries named are included in the act when they can no longer legally be defined as tax havens; or what amends can be made to the act.

Caribbean countries need to take action
Earlier this month Prime Minister Browne said that he would propose to colleague Heads of Government in CARICOM and the wider region that they collectively raise the matter with President Obama. The development, he said, amounted to “another unjustified assault on our financial services industry that will harm our economies”.

That said, it remains far from clear what CARICOM nations are doing collectively to have this erroneous designation removed from Washington D.C.’s legislation or addressed by members of the Congressional committees concerned.

While there appears to be some thought being given to a discussion on the issues involved at a forthcoming meeting of CARICOM’s Foreign Ministers, this may be too little too late as the time left for consideration of Washington D.C.’s legislation by Congress is rapidly closing.

Worryingly for the financial services sector in the region, the likelihood of such legislation becoming more widespread, despite enhanced levels of cooperation between Caribbean jurisdictions and OECD nations, may also relate to wider international reaction against what is known as tax inversion. This is the practice whereby large companies relocate their legal domicile to a lower-tax nation, or corporate haven, while retaining usually their material operations in its higher-tax country of origin.

In the case of Washington D.C. and Congress, rapid concerted public action is now required of the Caribbean if it is to avoid having financial services, a important pillar of the regional economy, further damaged.

“Tax haven” list could damage reputation of Caribbean countries

David Jessop, Expert Contributor

David Jessop is a consultant to the UK-based Caribbean Council. In a career spanning several decades, he has provided high level support and advice to industries, associations, governments and companies on investment, trade policy and political issues in the Caribbean, the UK and continental Europe.

PUBLISHED — September 22, 2015

Category: BusinessCARICOM & Foreign Policy


  • Cannot understand this! If a country levies very little tax or no tax, it is their own business. Not cooperating on tax matters is another matter. How about states in the US which levy no sales or income tax? Should they be labelled tax havens by other states?

  • […] a serious effort to engage Capitol Hill is needed, as well as one that addresses the perception that the Caribbean is an unregulated haven for illicit […]

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