Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Under the Insurance Act (Barbados), a Class 2 licence entitles the company to insure third-party risks wherever situated. The tax rate on all insurance companies with a Class 2 licence is 2%. Does the 2% rate constitute a “special tax benefit” within the meaning of Article XXX(3) of the Canada-Barbados Treaty?
Position: Yes.
Reasons: See below.
2023 IFA Annual Conference
CRA Roundtable
Question 4 - Canada-Barbados Income Tax Convention – “Special Tax Benefit”
Paragraph 3 of Article XXX (Miscellaneous Rules) of the Canada-Barbados Income Tax Convention (“the Treaty”) provides:
3. The provisions of Articles VI to XXIV of this Agreement shall not apply to any person or other entity entitled to any special tax benefit:
(a) in Barbados, under the International Business Companies Act, the Exempt Insurance Act, the Insurance Act, the International Financial Services Act, the Society With Restricted Liability Act, or the International Trusts Act, or any substantially similar law subsequently enacted; or
(b) in either Contracting State, under a law of that State which has been identified in an Exchange of Notes between the Contracting States.
Barbados has abolished its Exempt Insurance Company and Qualifying Insurance Company regimes.
The general corporate income tax rates in Barbados are currently based on taxable income as follows: 5.5% on the first BBD 1 million, 3% on BBD 1,000,001 to BBD 20 million, 2.5% on BBD 20,000,001 to BBD 30 million, and 1% on amounts in excess of BBD 30 million.
Currently, under the Insurance Act, Cap. 310 (Barbados), a Class 2 licence entitles the company to insure third-party risks wherever situated. The corporate tax rate on all insurance companies with a Class 2 licence is 2%.
Does Article XXX(3) of the Treaty exclude such an insurance company from the listed benefits of the Treaty? In other words, does the 2% rate constitute a "special tax benefit" within the meaning of Article XXX(3) of the Treaty?
CRA Response:
We understand that as part of recent tax reform in Barbados, amendments have been made to the Barbados Income Tax Act (“BITA”) to include the general corporate income tax rates as noted above, and to also specify the corporate income tax rates applicable to a Class 1, 2 or 3 licensee under the Insurance Act, Cap. 310 as follows:
(a) a Class 1 licensee under the Insurance Act, Cap. 310 shall be 0 per cent;
(b) a Class 2 licensee under the Insurance Act, Cap. 310 shall be 2 per cent;
(c) a Class 3 licensee under the Insurance Act, Cap. 310 shall be 2 per cent.
We understand that in conjunction with the tax reform corresponding amendments have been made to the Insurance Act, Cap. 310., the Act which governs insurance companies in Barbados, to define the different classes of licensees as follows:
Classes of licensee
3A (1) There shall be three classes of licensee under this Act as follows:
(a) Class 1 licensee which shall be an insurance company which underwrites related party business;
(b) Class 2 licensee which shall include an insurance company which underwrites risks of third parties;
(c) Class 3 licensee which shall include an insurance intermediary, an insurance management company and an insurance holding company
The preamble to Article XXX(3) of the Treaty is broadly worded and makes reference to “any special tax benefit” received by any person or entity under the Insurance Act or any substantially similar law. Given that there is a tax regime in Barbados that is specific to Insurance companies, a Class 2 licensee is considered to receive a “special tax benefit” for the purposes of Article XXX(3) of the Treaty. Accordingly, such companies are not entitled to the benefits provided under Articles VI to XXIV of the Treaty.
Komal Patel
2023-096542
May 17, 2023
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