On February 28, 2024, the Corporation Top-up Tax Bill, 2024 received its first reading in the House of Assembly. On 7 May 2024, it was passed by the Senate and it was published in the Official Gazette on May 24, 2024 (‘the Law’).
The Law does not include an income inclusion rule (IIR) and under-taxed profits rule (UTPR) .
It includes a domestic minimum top-up tax (DMTT), which is intended to be a Qualified Domestic Minimum Top-up Tax (‘QDMTT) for financial years beginning on or after January 1, 2024. As there is no IIR or UTPR, the entire Law applies just for the application of the DMTT.
Most aspects of the OECD Administrative Guidance are not reflected in the Law, aside from certain elements of the QDMTT design.
As from January 1, 2024, Barbados introduced a Qualified Domestic Minimum Top-up Tax (QDMTT) that is consistent with the GloBE Rules.
It applies to Barbadian subsidiaries or permanent establishments of in-scope Multinational Enterprises only where the DMTT Group’s income (for the first fiscal year commencing on or after January 1, 2024) is subject to an IIR or to a UTPR in another jurisdiction. This means that a top up tax will be imposed on these entities to ensure that they are subject to an effective tax rate of 15%, as per the GloBE Rules.
Barbados stated that it would ensure the Domestic Minimum Top-up Tax meets the required standards to qualify for the Qualified Domestic Minimum Top-up Tax safe harbour.
It should be noted that under Section 5(4) of the Law, Barbadian constituent entities of MNE groups where the DMTT Group’s income is not subject to an IIR or to a UTPR in another jurisdiction will not be subject to the Barbadian DMTT.
As the DMTT only applies in 2024 to a Constituent Entity when the MNE Group is subject to the GloBE Rules in another jurisdiction, this is classed as a Conditional DMTT for Pillar 2 purposes (similar to the DMTT in the Bahamas). A Conditional DMTT for 2024 can only be classed as a QDMTT providing the DMTT will not be conditional in any other year.
In the January 2025 Central Record of Legislation with Transitional Qualified Status issued by the OECD, the Barbados DMTT is treated as qualified for GloBE purposes, as well as for the purposes of the QDMTT Safe Harbour.
As noted below, most aspects of the provisions of the OECD Administrative Guidance are not included in the Law.
Section 2(2) of the Law does include a general interpretative provisions that provides that the Law should be construed in a manner that generates outcomes that are consistent or functionally equivalent with the OECD Model Rules, supplemented by the Pillar Two Commentary and any agreed administrative guidance on the interpretation or the GloBE Model Rules issued by the OECD.
The Law redrafts the OECD Model Rules into domestic legislation, with adjustments for the DMTT/QDMTT design. As such, very few aspects of the OECD Administrative Guidance are included in the law (aside from as relates to the DMTT design, currency conversion rules and Safe Harbours).
The following are not included in the Law:
-Deemed consolidation test (Article 1.2)
-Consolidated deferred tax amounts (Article 1.3)
-Sovereign wealth funds and the definition of Ultimate Parent Entity (Article 1.4)
-Clarifying the definition of ‘Excluded Entity’ (Article 1.5)
-Meaning of “ancillary” for Non-Profit Organisations (Article 1.6)
-Forex hedge election (Article 2.2)
-Debt release election (Article 2.4)
-Accrued Pension Expenses (Article 2.5)
-Excess negative tax carry-forward guidance (Article 2.7)
-Substitute Loss carry-forwards (Article 2.8)
-Equity Gain or loss inclusion election (Article 2.9)
-Allocation of taxes arising under a Blended CFC Tax Regimes (Article 2.10)
-The extension of the taxable distribution method election to insurance investment entities (Article 3.1)
-Exclusion of Insurance Investment Entities from the definition of Intermediate Parent Entity and Partially-Owned Parent Entity (Article 3.2)
-Restricted Tier One Capital (Article 3.3)
-Liabilities related to Excluded Dividends and Excluded Equity Gain or Loss from securities held on behalf of policyholders (Article 3.4)
-Portfolio shareholding election (Article 3.5)
-Application of Tax transparency election to Mutual insurance companies (Article 3.6)
-MTTCs (Second Set of OECD Administrative Guidance)
-Currency Conversion rules (Second Set of OECD Administrative Guidance)
-Meaning of “ancillary” for Non-Profit Organisations (Second Set of OECD Administrative Guidance)
-Additional rules (such as the deemed 50% requirement where employees perform work outside the employer’s jurisdiction for the SBIE) (Second Set of OECD Administrative Guidance).
No aspects of the December 2023, June 2024 or January 2025 OECD Administrative Guidance are included in the Law.
Part X of the Law provides for the application of the Transitional CbCR Safe Harbour, as provided in the OECD Safe Harbours and Penalty Relief Guidance.
The:
–Transitional UTPR Safe Harbour (not relevant as no UTPR in Barbados);
–QDMTT Safe Harbour (not relevant as Barbados only includes a DMTT);
–Simplified calculation for Non-Material Constituent Entities Safe Harbour
are not included.
The amendments to the Transitional CbCR Safe Harbour included in the December 2023 OECD Administrative Guidance are not included in the Law.
The following elections included in the OECD Model Rules are provided in the Law:
-Stock-Based Compensation Election (Article 11 of the Law)
-Election to use the Realization Method (Article 14 of the Law)
-Election to Spread Capital Gains (Article 15 of the Law)
-Consolidation Election (Article 17 of the Law)
-Unclaimed Accrual Election (Article 25(13) of the Law)
-GloBE Loss Election (Article 26(1) of the Law)
-Prior Year Adjustment Election (Article 28(3) of the Law)
-De minimis Election (Article 33(1) of the Law)
-Substance-Based Income Exclusion Election (Article 31(1) of the Law)
-Taxable distribution Election (Article 43 of the Law)
-Tax transparency Election Article 42 of the Law)
The following elections are not included in the Law:
-Distribution Tax Regime Election
-Excluded Entity Election
Other elections included in the OECD Administrative Guidance are not included in the Law. This includes the:
-Excess Negative Tax Carry-Forward Election;
-Debt Release Election;
-Equity Investment Inclusion Election;
-Foreign Exchange Hedge Election;
-Portfolio Shareholding Election.
As Barbados is implementing a DMTT, it has increased flexibility on the application of the GloBE rules. As such, some aspects of the GloBE rules are not relevant given the domestic tax system in Barbados. The deemed distribution tax regime rules are not included and neither are the provisions for multi-parented MNE groups.
Similarly, the definition of covered taxed in Section 23 of the Law is simplified and does not, for instance, refer to taxes levied by reference to retained earnings and corporate equity (as this is not relevant under the Barbados domestic tax regime).
The Law includes a domestic minimum tax (intended to be a QDMTT) for financial years beginning on or after January 1, 2024.
The DMTT calculation is based on the top-up tax calculated under the general GloBE rules.
The amount of top-up tax under the DMTT is subject to a specified calculation method which is based on the GloBE rules.
It expressly applies irrespective of the shareholdings in the group entities located in Barbados. This reflects the OECD Administrative Guidance that provides that Top-up Tax that is subject to the QDMTT is based on the whole amount of the jurisdictional Top-up Tax calculated, irrespective of the ownership interests held in the Constituent Entities located in the QDMTT jurisdiction by any Parent Entity of the MNE Group.
The domestic minimum tax is calculated:
• using the financial accounting standard of the ultimate parent entity, and,
• if that is not practicable, on the basis of an accepted or approved accounting standard, if:
o the constituent entity’s financial statements are prepared in accordance with that standard,
o the information contained in the financial statements is reliable; and
o permanent differences of more than EUR 1 million are conformed with the UPEs accounting standard.
Tax paid or incurred by a Constituent Entity-owner under a CFC Tax Regime that is pushed down to a domestic Constituent Entity in the GloBE Rules must be excluded, as provided in the OECD Administrative Guidance. Section 27(2) of the Law excludes CFC pushdown rules for the DMTT.
Section 27(2) also prevents the pushdown of tax to hybrids, PEs and for taxes on distributions (aside from Barbadian withholding tax on distributions).
The exclusion for MNEs in their initial phase of international activity does not need to be included in a DMTT, however, it can be included. The Second Set of OECD Administrative Guidance provides jurisdictions with three options regarding the temporary UTPR exclusion in their DMTT legislation.
Option one allows the jurisdiction not to adopt it.
Option two allows the jurisdiction to adopt it but limits it to cases where no Parent Entity is required to apply a Qualified Income Inclusion Rule with respect to Constituent Entities of an MNE Group located in the DMTT jurisdiction.
Option three allows the jurisdiction to adopt it without any limitations. (Note, if a jurisdiction opts for Option three, for the purposes of the QDMTT Safe Harbour the Switch-Over Rule would apply).
Section 56(1) of the Law implements Option two in Barbados.
Section 24(6) of the Law allocates the jurisdictional top-up tax to each constituent entity based on the general GloBE rules, using the following formula:
Top-up tax of a qualifying entity = jurisdictional top-up tax x qualifying income of the qualifying entity/aggregate qualifying income of all qualifying entities
Section 29(4) of the Law applies the DMTT to Stateless Entities (with a separate ETR calculation).
For detailed information on the application of the GloBE Rules in Barbados based on the latest Law, see our:
OECD Administrative Guidance: Domestic Implementation Matrix
Transitional CbCR Safe Harbour: Domestic Implementation Matrix
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