Published on January 7, 2014 by International Business Division/Theresa Blackman
The Protocol amending the Agreement between Canada and Barbados for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital is now in effect. It entered into force on 17 December 17, 2013.
According to Director of International Business, Kaeron Venner: "Under the provisions of this Protocol, for the purposes of the Agreement, the tax residency of a company that is resident in both Barbados and Canada under both countries' domestic laws (commonly referred to as a dually resident company) will be determined based on the place of incorporation. Therefore, a Barbados incorporated vehicle that is deemed to be dually resident will be regarded as resident solely in Barbados for the purposes of the Agreement and will be liable to tax in Barbados.
"Where Canada wishes to make a claim to tax that same entity, the rule is that such a vehicle may only be taxed in Canada on certain types of income derived from Canadian sources, such as income derived from activities that it carries in Canada through a permanent establishment (PE). This new tie breaker rule removes the need to have recourse to the Mutual Agreement Procedure to determine the residence of a dually resident company."
The Director further explained that on January 22, 1980 Canada and Barbados signed onto a Double Taxation Agreement (DTA) which excluded companies that were subject to a special tax benefit under the international financial services regime from all of the provisions of the Treaty.
He also said: "On November 8, 2011, Canada and Barbados signed a Protocol to amend the 1980 DTA. This Protocol, among other things, now allows entities operating in the international financial services sector to benefit from a number of provisions in the Treaty, including the provisions on residency. In addition, such entities will now be covered under the new comprehensive exchange of information provisions which now meet the OECD standard."
Barbados values the mutually beneficial and long standing relationship with Canada and welcomes this development as it will further concretise Barbados' principles of transparency and substance. Through our network of tax treaties, it will further solidify Barbados' commitment to international best practices on the exchange of information.