Dr Trevor Carmichael explores the role of double tax treaties in the development of international commerce and beyond.
Canada has manifested its role in the commercial development of the Caribbean by way of its own international commercial policies as part and parcel of its overall double tax treaty development. The concept of a double tax treaty as a facilitator of commercial development between nations is well documented. As well as allocating tax between the treaty partners, double tax treaties have also assisted in resolving problems and obtaining benefits which could not have been achieved on a unilateral basis.
One important area of the double tax treaty is the reduction and often elimination of foreign withholding taxes in respect of dividends, interests and royalties, which in turn will ensure that there will be no unrelieved excess foreign tax. The double tax treaty also works towards producing an environment where there is physical certainty and which will therefore encourage investment and trade between the treaty partners. In this respect, double tax treaties will establish foreign taxes fairly and will provide mechanisms for resolving any problems of dual residence or dual sources of income. In addition, they will define the various forms of taxable income and establish eligible criteria which set out the taxing rights of the treaty partners.
The permanent establishment concept which is used in the double tax treaty is an excellent example in that it will define the form of business activity which indicates whether or not an enterprise operating in a foreign country has a taxable presence in that jurisdiction. Furthermore, double tax treaties will act as necessary safeguards by way of a non-discrimination article, assuring national enterprises of one treaty partner that they will not be subject to more burdensome taxation in the other treaty jurisdiction. Furthermore, the double tax treaty will always provide the mechanism for administrative collaboration between the revenue authorities of the two treaty partners by way of an exchange of information provision.
Canada has endorsed these benefits of the double tax treaty by having successfully negotiated and entered into double tax treaties with Jamaica (1978), Trinidad and Tobago (1995), Guyana (1985), and Barbados (1980). In the case of the Barbados treaty in particular, the use of items in the treaty has been an important catalyst in Barbados' international business development as well as in the global business competitiveness of Canada. There are attractive options available to international business planners under the Canada-Barbados double tax treaty in respect of the use of international business companies, offshore bank institutions and captive insurance companies.
The judicious use of this treaty has been an important element in the development of the international business sector in Barbados. That sector has, since 1986, taken on a role on the island equal in importance and revenue to the tourist industry, of which it is an integral part. The presence of many international business entities in Barbados facilitated by this treaty has resulted in an important transfer of technology, both in an industry-specific sense as well as in a broader sense.
During the 1990s, Barbados entered the international arena of bond trading and investment management, and Reuters and Bloomberg screens became machines familiar to a growing number of international business offices. The transfer of technology has also helped to increase the level of service provided by the Barbados business and professional groups, which have recognised the need to be efficient in order to remain competitive and attractive to sound international business institutions of proven integrity.
The benefit to Canada has been not only one of assisting Barbados in this important facet of its national and international development. It has also lent Canadian goods and services the ability to be competitive globally with other jurisdictions whose businesses are able to benefit from `ports of call', which in some cases are not present and available to Canadian businesses.
Enterprises as diverse as the Gildan group, leaders in the leisurewear industry, and the Medina group, pioneers in nutri-cuisine, have found the Caribbean attractive not only as a base of international operations but also as a regime for active business involvement. In the case of the Bank of Montreal Insurance (Barbados) Ltd, for six years it has awarded a full scholarship to a Barbadian student for a course of study leading to an MBA degree at the Richard Ivey School of Business at the University of Western Ontario. This generous gesture is but a small part of a wider charitable offering by the bank to Barbados, which is the location of its international operations. Many other Canadian-connected business entities have also thoughtfully donated to Barbadian charities in the usual course of their operations.
Canada has also recognised the importance of the bilateral investment treaty which was first developed between 1959 to 1988 by the European states. The essential features of the bilateral investment treaty deal with the conditions of entry for foreign investments and rules of treatment, convertibility of currencies and guaranties in that area, protection against expropriation, and compulsory dispute settlement through international mechanisms. The bilateral investment treaty therefore has particular advantages to developing countries which are seeking to attract investment and to give investors the level of comfort which is required for a successful policy of industrial and commercial development. Canada has started this process first with its bilateral exchange with Dominica, and its bilateral investment treaties with Barbados and St Vincent.
In an historic as well as a purely substantive context, the themes of trade, aid and commerce merged and did not allow for raw treatment as distinct and separate concepts. For not only did trade and aid serve throughout the hemispheric relationship sometimes as a buffer and other times as an adjunct to commerce, but the development of aid as a conceptually separate policy was very much an outgrowth of the trade relationship up to the period immediately after the Second World War. The post-war commercial relations stressed that commerce in some cases could not only reflect the traditional role of supplementing trade, but it could also be part and parcel of the aid dimension as in the work of the Canadian International Development Agency (CIDA) and the Canadian Executive Service Organisation (CESO).
The succinctly-stated wish of the former vice chancellor of the University of the West Indies, Alister McIntyre, emphasising his belief in the strength and potential of the hemispheric relationship, is therefore to some degree answered when these three themes are contextually considered. The themes so treated, however, further highlight the mutuality of benefit which has accrued from cooperation for development in such a tripartite context. Yet again, the themes underscore the need to evaluate the concept of benefits in their wider context where pure financial and monetary data may be judged in similar terms such as the transfer of technology, the development of skills and training, and all of the other elements that make for holistic and sustainable development.
By Dr Trevor A Carmichael
Dr Trevor A Carmichael, QC is a barrister-at-law at Chancery Chambers in Bridgetown. He is also an accomplished author. The foregoing is reprinted, with permission, from his 2001 book Passport to the Heart: Reflections on Canada Caribbean Relations, published by Ian Randle Publishers of Jamaica.