Finance Minister: Multinationals exploiting regional tax loophole

Some multinational companies operating in multiple territories in the Caribbean are exploiting the lack of tax harmonisation in the region to pay less taxes, Finance and Economy Minister Larry Howai said. “Where the domestic tax burden of one country is relatively higher than another, there will be a shifting of the tax liabilities by companies seeking to arbitrage the differences that exist. “I have been reliably informed that multinationals are already exploiting the failure to harmonise tax rates in Caricom, which is working to the detriment of the region as a whole. I recommend that tax harmonisation within Caricom be given priority for completion,” Howai said. When different Caribbean countries tax the same item at a different rate, multinationals can allocate the expenditure to the country which has a lower rate, even if the expenditure was incurred in the country with a higher rate.

 

Howai was delivering his feature address at the 22nd general assembly and technical conference of the Caribbean Organisation of Tax Administrators (COTA) at the Hyatt Regency Trinidad, Port-of-Spain, yesterday. Asked after his address who were the multinational perpetrators he alluded to, Howai said, “Well, I wouldn’t want to identify anyone just yet. We’re in discussions and some of these discussions are very sensitive, you know, so I would prefer not, but they know themselves.” Asked to quantify how much money is being lost in taxes, he said, “I don’t have that piece of information. They did indicate to me that we’re losing, but I didn’t get the opportunity to have that discussion as yet.” In the build up to his statement, he told tax collectors from the 14 Caricom countries, plus representatives from the British Virgin Islands—a tax haven—Turks and Caicos, and St Maarten, an aspirant to associate membership in COTA, “You face challenges from all quarters, both within and outside, your jurisdictions. Taxpayers are now more educated and are constantly observing whether their interests are being served with fairness, efficiency and professionalism. Performance measurements and customer service are important elements of the new paradigm.

 

“Governments are now demanding greater efficiency so that taxes due are collected. International organisations are also involved in the examination of your operations. “In addition to all these, you have to analyse financial crime, illicit activities and underground sectors of the economy, all of which are a threat to the tax base. “I note that the operations of multinationals, together with complex business transactions, require an ever changing dynamic tax administration. Your job is not easy.” Later in his speech, Howai said, “We therefore have to be continuously vigilant in examining the (Caricom) Treaty to ensure it serves its purpose. It is noted that in the tax arena that tax harmonisation remains a work in progress. It is important to fast-track this process. tax harmonisation reduces the tendency for competition amongst member states and provides equal investment opportunity amongst states.” “Competition for investments have encouraged countries to make their tax systems more attractive. However, care must be taken to ensure that changes are not anti-competitive and harmful to the region by giving rise to possible economic sanctions. “Greater and more regular interaction amongst Caricom members on taxation issues impacting on the region will aid in capacity building and will standardise the treatment of tax issues by large multinationals operating in the region.”