tax-related articles

Get the Facts Straight! Barbados is Not a Tax Haven

The Press, both internationally and locally, is often maligned when it deals with matters of national importance in an aggressive way, even though, in the majority of instances, careful research of the facts often support the questions posed or views espoused.

Even in the most reputable of newspapers, however, there are times when such criticism is deserved; when bias creeps in, and half-truths are insinuated while the critical facts are ignored, sacrificed at the altar of profitability; when selling more newspapers becomes more important than telling the whole story, lest truth might destroy a chance to break a story on a hot topic. This lapse in good journalism is no more evident than in times where seemingly sensational news has broken, and the temptation to get ahead of a story can go even beyond the imperative of selling more papers to corrupt journalistic mores.

Such is the case, we believe, with two articles appearing over the last weekend in the Canadian Press, both of them fuelled by the recent “Panama Papers” imbroglio, and both attempting to label Barbados as a tax haven allowing Canadian companies to evade taxation in Canada, as a result of Canada’s Double Taxation Treaty with Barbados, and their exempt surplus programme. Both articles erroneously suggest that money can be “parked” in Barbados away from Canadian or American tax authorities — nothing could be further from the truth — and that the result of this is, and will continue to be, higher taxation for Canadian residents, clearly appealing to a sore spot in the psyche of a population who already see themselves as heavily taxed, and to the Canadian ethos of fair play and doing the right thing.

For those in possession of all of the facts, the subtle deception of an experienced journalist can easily be detected, but for the millions of uninformed readers in this Internet age, they can do little else but follow the carefully manipulated pseudo-facts and open-ended questions which will lead them, inevitably we fear, to the wrong conclusions. In hard economic times, those conclusions can coalesce and bring pressure to bear on already economically beleaguered Governments to make changes that are inimical to the greater good of their countries.

Successive Governments of Canada have clearly recognised, on the one hand, the increasingly competitive nature of conducting international business, and on the other hand, the import of the considerable research conducted by their own University of  Toronto (Professor Hejazi, 2007, 2015), as well as by US Universities Harvard (Professors Desai and Foley, 2008) and Michigan (Professor Hines, 2008, 2009). That is, the use of a reputable, well-regulated, treaty-based international financial centre conduit, like Barbados, by Canadian companies investing abroad, is net positive for the Canadian economy in the long run, and that the benefits outweigh the more immediate loss of taxation in the home country, typically seen in the use of a double taxation treaty. Interestingly, none of this sizable body of research was mentioned in either article.

Our purpose today, though, in highlighting these articles, is not to address the shortcomings of the Canadian press, who are but following what has become an unfortunate trend in sensationalist journalism almost everywhere else in the world. Rather, it is to call on the Barbados Government to recognise that the 300-plus years of Canada/Barbados trade and international business-relationship could be at risk, and that urgent action is required on their part to spearhead a determined effort to ensure that the new Liberal Government of Canada is in full possession of all of the facts, and fully appreciates the value of the Barbados/Canada international business connection. This matter needs to be addressed at the highest level, and with the highest priority, before uninformed opinion is allowed to fester and misdirect electoral pressure, resulting in considerable damage to both our own and Canada’s economic future.

Source: The Publisher of the Barbados Advocate

Cyprus Amends Intellectual Property Tax Regime in Line With OECD Rules

Cyprus proposed new legislation for its intellectual property (IP) tax regime, known as the IP box regime. This is an amendment of the regime introduced by Cyprus in 2012, bringing it in line with new EU requirements and OECD rules against base erosion and profit shifting.

While the amended IP box regime may not benefit businesses quite as extensively as before, it still gives Cyprus a competitive edge and safeguards Cyprus’s future as a centre for IP structuring.

In brief

The Ministry of Finance (MoF) announced on 30 December 2015 that it will promote amendments to the current Cyprus Intellectual Property (IP) tax regime in order to introduce a new IP tax regime as from 1 July 2016. The new IP tax regime will be fully aligned with the conclusions of the OECD’s Base Erosion and Profits Shifting (BEPS) Action 5 report released in October 2015.

The MoF announcement states that maximum possible transitional arrangements are intended. Therefore, it is expected that IP already benefitting from the current Cyprus IP tax regime by 30 June 2016 will continue to receive the current benefits for a further 5 years, i.e. until 30 June 2021. A much shorter transitional period to 31 December 2016 is expected in the case of IP which is acquired, directly or indirectly, from related parties at any time in the first six months of 2016, unless at the time of acquisition such IP was already benefitting from an IP tax regime.

Under the new IP tax regime a narrower range of IP assets will qualify as compared to the current IP tax regime.

The current Cyprus IP tax regime leads to a competitive effective corporate tax rate of 2,5% (or lower) for qualifying incomes earned on a broad range of qualifying IP assets. Although not referred to in the MoF announcement it is expected that the planned new Cyprus IP tax regime will retain the benefit of the competitive effective corporate tax rate of 2,5% (or lower) but only a portion of the income will qualify. The qualifying portion of the income is expected to reflect the research and development (R&D)expenditure undertaken by the IP owner itself (or outsourced to unrelated parties) as compared to the total R&D expenditure required to develop the asset.

In detail

The MoF announced on 30 December 2015 that it will promote amendments to the current Cyprus IP tax regime in order to introduce a new IP tax regime as from 1 July 2016. The new IP tax regime will be fully aligned with the conclusions of the OECD’s BEPS Action 5 report released in October 2015. The OECD’s Action 5 report has been endorsed by the G20 and OECD countries and further endorsed by the Council of the European Union which in December 2015 invited the EU’s Code of Conduct Group (Business Taxation) to follow the report’s approach.

The MoF announcement states that maximum possible transitional arrangements are intended. Therefore, it is expected that IP already benefitting from the current Cyprus IP tax regime by 30 June 2016 will continue to receive the current benefits for a further 5 years, i.e. until 30 June 2021. A much shorter transitional period to 31 December 2016 is expected in the case of IP which is acquired, directly or indirectly, from related parties at any time in the first six months of 2016, unless at the time of acquisition such IP was already benefitting from an IP tax regime.

The current Cyprus IP tax regime leads to a competitive effective corporate tax rate of 2,5% (or lower) for qualifying incomes earned on qualifying IP assets. Qualifying income currently includes royalties, gains on disposal of IP and IP infringement compensation. Qualifying assets are currently broadly defined and include, for example, copyrights (which may take any of the following forms: literary works, dramatic works, musical works, scientific works, artistic works, sound recordings, films, broadcasts, published editions, databases, publications, software programmes), patented inventions, trademarks (and service marks) as well as designs and models that are used or applied on products. A narrower range of IP assets will qualify under the new IP tax regime as compared to the current IP tax regime, expected to include patents and computer software.

Although not referred to in the MoF announcement it is expected that the planned new Cyprus IP tax regime will retain the benefit of the competitive effective corporate tax rate of 2,5% (or lower) but only a portion of income will qualify. The qualifying portion of the income is expected to reflect the R&D expenditure undertaken by the IP owner itself (or outsourced to unrelated parties) as compared to the total R&D expenditure required to develop the asset.

Although not referred to in the MoF announcement it is expected that the planned new Cyprus IP tax regime will retain the benefit of the competitive effective corporate tax rate of 2,5% (or lower) but only a portion of income will qualify. The qualifying portion of the income is expected to reflect the R&D expenditure undertaken by the IP owner itself (or outsourced to unrelated parties) as compared to the total R&D expenditure required to develop the asset. In line with BEPS Action 5 recommendations it is expected that Cyprus will spontaneously exchange information (under existing international agreements) on taxpayers who benefit from the transitional arrangements of the current IP tax regime if the IP entered the current IP tax regime in the period 7 February 2015 – 30 June 2016.

The Takeaway

Given the political agreement at EU level, such a move by the Cyprus Authorities to amend the current IP tax regime to be in line with the OECD’s BEPS Action 5 was expected. We welcome the Cyprus Authorities intention to provide for the maximum possible transitional arrangements (until 30 June 2021, the latest) so as to give taxpayers stability in the medium term. Taxpayers should consider whether there is IP not currently benefitting from the current Cyprus IP tax regime which they wish to introduce to the current IP tax regime by 30 June 2016 in order to take advantage of the transitional rules until 30 June 2021, should the IP be eligible. We expect that in the coming months more detail will be announced by the Cyprus Authorities on the new IP tax regime.

Source: https://www.pwc.com.cy/en/publications/assets/direct-tax-newsletter-n-1-2016.pdf