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Barbados to ask for more time for Global Minimum Tax

It’s been reported that Barbados is to ask the OECD for more time to implement the Pillar Two GloBE Rules.

The Prime Minister stated:

“Most of us in the world have agreed that this [tax] is going to come. But the problem is they want transition governments by 2023, then they changed it to 2024 because of COVID. Well, 2023 and 2024 is still tomorrow for all intents and purposes.

“Therefore countries like ours have to argue that to be able to sacrifice that kind of corporation tax in that 18 months’ time period is ‘gootma’, it’s unfair, it’s wrong.” 

It’s unclear from this exactly what Barbados expects. The implementation of the Pillar Two rules in Barbados allows them to collect top-up tax on foreign low-taxed entities if there is an Ultimate Parent Entity, Intermediate Parent Entity or Partially-Owned Parent Entity in Barbados. It also allows them to collect tax allocated to Barbados entities via the Under-Taxed Payments Rule.

The Pillar Two GloBE Rules are implemented as a so-called ‘Common Approach’. The OECD in its October 2021 Statement, stated this means that jurisdictions:

  • are not required to adopt the GloBE rules, but, if they choose to do so, they will implement and administer the rules in a way that is consistent with the outcomes provided for under Pillar Two, including in light of model rules and guidance agreed to by the IF; and
  • accept the application of the GloBE rules applied by other IF members including agreement as to rule order and the application of any agreed safe harbours.

As such if Barabdos didn’t want to implement the Pillar Two GloBE Rules until, say 2025, it would be free to do so. However, this wouldn’t change the foreign tax treatment of low-taxed Barbados entities that would be subject to top-up tax in jurisdictions that have enacted the GloBE Rules. 

If Barbados is actually asking the OECD for more time before resident entities are subject to top-up tax in foreign jurisdictions (eg some form of white list), I’d be extremely surprised if this was given any consideration. It would effectively drive a wedge through the whole basis of Pillar Two, with some jurisdictions still being permitted to have low-taxed entities and others not.