By Ali­cia Nicholls

Be­sides tourism, fi­nan­cial ser­vices are among the main ser­vices ex­port­ed by Caribbean coun­tries, par­tic­u­lar­ly those ju­ris­dic­tions which are clas­si­fied as in­ter­na­tion­al fi­nan­cial cen­tres (IFCs).

On April 30, 2025, the Shri­dath Ram­phal Cen­tre for In­ter­na­tion­al Trade Law, Pol­i­cy & Ser­vices (SRC) of The Uni­ver­si­ty of the West In­dies (UWI), Cave Hill Cam­pus, in col­lab­o­ra­tion with The UWI Fac­ul­ty of Law, Saint Amans Glob­al Ad­vi­so­ry, and spon­sors EY and In­vest Bar­ba­dos, host­ed a con­fer­ence on “In­ter­na­tion­al Tax Re­form and Com­pet­i­tive­ness: A Caribbean Per­spec­tive”. The event pro­vid­ed a plat­form for di­a­logue to dis­cuss what the cur­rent re­forms of the glob­al tax reg­u­la­to­ry land­scape mean for the com­pet­i­tive­ness of those Caribbean coun­tries which have used com­pet­i­tive cor­po­rate in­come tax (CIT) rates as a tool to en­tice in­ter­na­tion­al firms to use their shores as a base for ser­vic­ing in­ter­na­tion­al clients. In light of this dis­cus­sion, this SRC Trad­ing Thoughts re­flects on what these glob­al tax de­vel­op­ments could pos­si­bly mean for Caribbean in­ter­na­tion­al fi­nan­cial ser­vices trade.

OECD/G20 In­clu­sive Frame­work’s BEPS Two Pil­lar So­lu­tion

At the heart of the cur­rent glob­al tax re­form agen­da is the Or­gan­i­sa­tion for Eco­nom­ic Co­op­er­a­tion and De­vel­op­ment/Group of 20 (OECD/G20) In­clu­sive Frame­work’s Base Ero­sion and Prof­it Shift­ing (BEPS) 2.0 ini­tia­tive. The OECD es­ti­mates that US$100-240 bil­lion is lost year­ly to BEPS prac­tices, rep­re­sent­ing 4-10% of glob­al CIT rev­enues. Lost tax rev­enues un­der­mine gov­ern­ments’ tax bases, lim­it­ing their abil­i­ty to fund es­sen­tial ser­vices like health, ed­u­ca­tion and to in­vest in cap­i­tal works pro­grammes. More­over, CIT rates have steadi­ly fall­en as coun­tries com­pete with each oth­er for cap­i­tal, lead­ing to what the IMF in a 2019 blog termed a ‘race to the bot­tom’. Low­er CIT rates al­so shift the tax bur­den on to in­di­vid­u­als, which could im­pact coun­tries’ abil­i­ty to fi­nance achieve­ment of the Sus­tain­able De­vel­op­ment Goals (SDGs) by 2030 and their wider na­tion­al de­vel­op­ment pro­grammes.

The orig­i­nal BEPS project (BEPS 1.0) aimed to ad­dress, in­ter alia, multi­na­tion­al com­pa­nies (MNCs)’ use of ag­gres­sive tax plan­ning strate­gies ex­ploit­ing loop­holes and mis­match­es be­tween coun­tries’ tax laws to ar­ti­fi­cial­ly shift prof­its to ju­ris­dic­tions with no or low tax­a­tion, and which ul­ti­mate­ly erode coun­tries’ tax bases. BEPS 1.0 com­pris­es a set of 15 ac­tion points pub­lished in Ju­ly 2013. The OECD is a pluri­lat­er­al body com­pris­ing 38 of the world’s wealth­i­est coun­tries by gross do­mes­tic prod­uct (GDP) (ex­clud­ing most no­tably Chi­na). This of­ten leads to le­git­i­mate crit­i­cism over whether it is the best fo­rum for be­ing the world’s ‘tax watch­dog’ and tax stan­dard-set­ting body, es­pe­cial­ly when com­pared to the Unit­ed Na­tions (UN) which has al­most uni­ver­sal mem­ber­ship and was the his­tor­i­cal fo­rum for mul­ti­lat­er­al tax co­op­er­a­tion dis­cus­sions. Faced with these crit­i­cisms, the OECD cre­at­ed the In­clu­sive Frame­work for BEPS in 2016 which sought to make it a more in­clu­sive process and as at May 2025 com­pris­es over 140 par­tic­i­pat­ing coun­tries, in­clud­ing from the Caribbean, sup­pos­ed­ly par­tic­i­pat­ing on an equal foot­ing.

De­vel­oped in re­sponse to the tax chal­lenges aris­ing from dig­i­tal­i­sa­tion, BEPS 2.0 com­pris­es what has been termed a ‘two-pil­lar so­lu­tion’. Pil­lar 1 will ad­dress the re­al­lo­ca­tion of tax­ing rights over MNCs to mar­ket ju­ris­dic­tions, that is, ju­ris­dic­tions where the MNCs have con­sumers even if they lack a phys­i­cal pres­ence. Pil­lar 2, how­ev­er, in­tro­duces a Glob­al Min­i­mum Tax (GMT) of 15 per cent on MNCs with con­sol­i­dat­ed an­nu­al rev­enues ex­ceed­ing €750 mil­lion. In light of big scan­dals around large MNCs pay­ing lit­tle to no tax­es, it seeks to en­sure that the world’s biggest com­pa­nies pay a min­i­mum lev­el of tax ir­re­spec­tive of where they op­er­ate.

Coun­tries’ im­ple­men­ta­tion of a GMT is not manda­to­ry, but the Glob­al An­ti-Base Ero­sion (GloBE) rules al­low for a top-up tax mech­a­nism. If a coun­try’s ef­fec­tive tax rate in one ju­ris­dic­tion falls be­low the 15 per cent thresh­old, oth­er ju­ris­dic­tions can claim the short­fall. In re­sponse, sev­er­al ju­ris­dic­tions are in­tro­duc­ing a Qual­i­fied Do­mes­tic Min­i­mum Top-Up Tax (QMDTT) to en­sure that any ad­di­tion­al tax rev­enue stays with­in their bor­ders. How­ev­er, OECD re­forms, like the GloBE mod­el rules, do not al­ways cen­tre de­vel­op­ing coun­tries’ con­cerns, such as the costs to ad­min­is­ter and com­ply with these com­plex rules and broad­er is­sues around coun­tries’ tax sov­er­eign­ty.

Caribbean IFCs’ his­tor­i­cal re­sponse to many glob­al fi­nan­cial gov­er­nance ini­tia­tives has of­ten been one of ear­ly adop­tion and good faith en­gage­ment, even when the eco­nom­ic costs ap­pear high. Sev­er­al rea­sons ac­count for this, in­clud­ing want­i­ng to be good ‘in­ter­na­tion­al cit­i­zens’, avoid­ing dis­pro­por­tion­ate in­ter­na­tion­al scruti­ny and black­list­ing, and al­so seek­ing to par­lay their com­pli­ance in­to a com­pet­i­tive edge. It is quite com­mon to see fre­quent ref­er­ences to ‘com­pli­ant ju­ris­dic­tion’ in the mar­ket­ing lit­er­a­ture of many Caribbean IFCs.

How does this re­late to fi­nan­cial ser­vices trade in the Caribbean?

In­ter­na­tion­al fi­nan­cial ser­vices firms in the re­gion, such as wealth man­age­ment providers, banks, trust com­pa­nies and foun­da­tions, main­ly ser­vice non-res­i­den­tial clien­tele and there­by, en­gage in ser­vices trade. Un­der the World Trade Or­ga­ni­za­tion (WTO)’s Gen­er­al Agree­ment on Trade in Ser­vices (GATS), a ser­vice can be sup­plied via one of four modes of sup­ply: mode 1 (cross-bor­der sup­ply), mode 2 (con­sump­tion abroad), mode 3 (com­mer­cial pres­ence) and mode 4 (tem­po­rary pres­ence of nat­ur­al per­sons).

An ex­am­ple of Mode 1 would be where a wealth man­age­ment pro­fes­sion­al in coun­try A pro­vides ad­vice to a client in coun­try B via a tele­phone call or on­line. Mode 2 would be where a High Net Worth In­di­vid­ual from coun­try A trav­els to coun­try B to ob­tain wealth man­age­ment ser­vices. Mode 3 is where a glob­al in­vest­ment bank from coun­try A opens a bro­ker­age firm in coun­try B to ser­vice clients there. Mode 4 would be where a fi­nan­cial an­a­lyst from coun­try A is tem­porar­i­ly sec­ond­ed to the of­fice of an in­ter­na­tion­al bank in coun­try B to pro­vide a con­sult­ing ser­vice.

These firms not on­ly con­tribute to eco­nom­ic ac­tiv­i­ty and GDP, but al­so to gov­ern­ment rev­enues through CITs and li­cense and per­mit fees, for­eign ex­change, ex­port rev­enue and em­ploy­ment gen­er­a­tion.

One of the main con­cerns stem­ming from these glob­al tax de­vel­op­ments is that some Caribbean IFCs re­lied on a strat­e­gy of no or low CITs to at­tract in­vestors. This is not unique to Caribbean IFCs and has been uti­lized by IFCs around the world. There­fore, there was re­al con­cern about the ex­tent to which these coun­tries’ in­ter­na­tion­al busi­ness and fi­nan­cial ser­vices sec­tors would re­main vi­able in light of these de­vel­op­ments. How­ev­er, it should be stat­ed that while tax ad­van­tages were def­i­nite­ly a main tool, it was not the on­ly one in coun­tries’ in­vest­ment at­trac­tion toolk­it. For ex­am­ple, Bar­ba­dos has not just re­lied on its tax and bi­lat­er­al in­vest­ment treaty net­work, but al­so its well-ed­u­cat­ed and skilled work force, po­lit­i­cal and eco­nom­ic sta­bil­i­ty, rule of law and favourable ge­o­graph­ic lo­ca­tion and trans­porta­tion con­nec­tions.

While some Caribbean ju­ris­dic­tions have adopt­ed a wait-and-see ap­proach, oth­er ju­ris­dic­tions like Bermu­da, Bar­ba­dos and the Ba­hamas passed leg­is­la­tion, fol­low­ing stake­hold­er con­sul­ta­tions, to re­form their tax laws to be com­pli­ant with the GloBE rules, as well as im­ple­ment oth­er in­cen­tives to at­tract in­vestors. Ex­am­ples in­clude Bar­ba­dos’ Patent Box Regime to pro­mote in­no­va­tion, as well as cred­its for re­search and de­vel­op­ment and pro­duc­tiv­i­ty and in­no­va­tion, among oth­ers.

A span­ner in the works is that the US, which un­der Pres­i­dent Joe Biden ac­cel­er­at­ed the OECD’s work on a GMT, nev­er was able to pass leg­is­la­tion to bring this in­to ef­fect and now the Trump ad­min­is­tra­tion has in­di­cat­ed through an ex­ec­u­tive or­der of Jan­u­ary 20, 2025 that “the Glob­al Tax Deal has no force or ef­fect in the Unit­ed States” and has threat­ened re­tal­i­a­tion for any ac­tions tak­en against US com­pa­nies.

More­over, in 2023 the UN passed a his­toric res­o­lu­tion paving the way for coun­tries to be­gin talks to con­clude a UN Frame­work Con­ven­tion on Tax (UN­FCT). These ne­go­ti­a­tions are on-go­ing and have faced re­sis­tance from most OECD coun­tries. How­ev­er, de­vel­op­ing coun­tries’ sup­port for the pro­posed UN­FCT is based on the be­lief that the UN is the bet­ter and more in­clu­sive fo­rum for these dis­cus­sions and with the aim of tax re­form which re­dounds to the sus­tain­able de­vel­op­ment of all mem­bers and not the in­ter­ests of a se­lect few.

Rec­om­men­da­tions

This ar­ti­cle makes sev­er­al rec­om­men­da­tions for how Caribbean coun­tries could ap­proach this as they seek to pro­tect the com­pet­i­tive­ness of their in­ter­na­tion­al fi­nan­cial ser­vices sec­tors:

* Caribbean coun­tries need to in­crease the amount of da­ta col­lect­ed and made avail­able on the sec­tor. While there is good in­for­ma­tion on do­mes­tic fi­nan­cial sec­tor through, for ex­am­ple, the fi­nan­cial sta­bil­i­ty re­ports pub­lished an­nu­al­ly, there re­mains too lim­it­ed pub­licly avail­able da­ta on the in­ter­na­tion­al busi­ness and fi­nan­cial ser­vices sec­tor in many coun­tries, in­clud­ing key in­di­ca­tors like con­tri­bu­tion to GDP, em­ploy­ment da­ta, con­tri­bu­tion to cor­po­rate rev­enues and how many firms in each coun­try (both with­in the fi­nan­cial ser­vices sec­tor and out­side) are with­in the €750 mil­lion Eu­ros scope.

This is da­ta that tax au­thor­i­ties should have or should be able to re­quest through coun­try-by-coun­try re­port­ing but the ag­gre­gate num­bers on the amount of in-scope com­pa­nies is not pub­licly avail­able. These da­ta short­ages not on­ly make ev­i­dence-based pol­i­cy mak­ing dif­fi­cult, but al­so lim­it re­searchers’ abil­i­ty to con­duct em­pir­i­cal stud­ies that ul­ti­mate­ly pol­i­cy mak­ers could ben­e­fit from;

* This col­lab­o­ra­tion should al­so ex­tend to host­ing sem­i­nars and oth­er events which serve as fo­ra for di­a­logue and in­for­ma­tion ex­change. This is what The UWI and its part­ners sought to ac­com­plish by host­ing their con­fer­ence on April 30, and which re­ceived very pos­i­tive feed­back;

* Eco­nom­ic and le­gal im­pact as­sess­ments are need­ed to iden­ti­fy spe­cif­ic risks to tax rev­enue and FDI and ex­ports and mon­i­tor­ing should be done on a pe­ri­od­ic ba­sis. It helps to en­sure that these coun­tries’ par­tic­i­pa­tion in in­ter­na­tion­al dis­cus­sions and ne­go­ti­a­tions is based on ac­tu­al em­pir­i­cal da­ta.

* Caribbean IFCs should con­tin­ue to en­hance their in­vest­ment val­ue propo­si­tion be­yond non-tax fac­tors. In­deed, the CARI­COM Sin­gle Mar­ket (CSM), and the trade agree­ments which CARI­COM coun­tries have with the EU, UK and oth­er part­ners are good sell­ing points for com­pa­nies to use the re­gion as a base to ex­port their goods and ser­vices.

Ali­cia Nicholls is the ju­nior re­search fel­low at the Shri­dath Ram­phal Cen­tre for In­ter­na­tion­al Trade Law, Pol­i­cy and Ser­vices (SRC). This ar­ti­cle was first pub­lished by the SRC, lo­cat­ed in Cave Hill, Bar­ba­dos, last month.