Barbados: Barbados Has Entered The E-Commerce Fray

1. Barbados recently enacted The Barbados Electronic Transactions Act (ETA), 2001 relating to electronic signatures to enable it to remain among the most progressive and diversified International Financial Centres, and to establish itself also as an E-Commerce Centre as well. The ETA is part of a legislative package that includes the Evidence Act¹ and the Interpretation Act², with a third enactment on Consumer Protection promised shortly. There already exists the Fair Trading Commission Act³ to restrict unfair competition particularly with respect to Utilities. This legislation brings Barbados into line with OECD countries, and with a small number of Financial Centres in the Caribbean, including Bermuda and the Cayman Islands.

2. International financial services relate to the activities of individual corporate entities whose assets and liabilities attach to non-residents where the transactions are initiated abroad, and which are owned and controlled by non-residents. The services may be banking, funds management, insurance, trust business, and asset management and protection, and related areas, and the reason for their use of such centres and their choice of a particular centre, are a low and competitive tax regime, the existence of a facilitatory legal and regulatory regime, and a commodious infrastructure consisting of political stability, professional and skilled human resources, access to international communications, and other supporting characteristics.

3. E-commerce is essentially, the trading on the Internet, of goods and services normally delivered off line, such as financial services, and products that can be digitized, including computer software, books, music, and videos. The term E-commerce is sometimes used narrowly as relating to financial transactions, with E-business being used in relation to business processes. E-business of course, embraces E-commerce. With the Internet, transactions take place in the virtual environment in which national boundaries of tax jurisdictions are effectively dismantled.

4. Since both E-Commerce and Financial Services are based primarily on similar tax, legal and regulatory and other facilitating operating environments, and the nature and scope of their activities overlap, they bond easily, and complement and support each other. However because E-commerce is Internet based, its operations necessitate a review of the existing legal and regulatory framework which is paper based, and assume the physical limits of national and political boundaries. It also calls for the establishment of new or modified legislative and technical arrangements. ETA laws are therefore an element of that modified legal framework.

5. The enactment by Barbados of the ETA thus represents an important policy initiative in the country’s economic strategy. The Act effectively marries the country’s International Financial Services sector to E-Commerce to enable the Country to take advantage of the considerable growth potential of E-commerce based on the Internet, that this new form of commercial and business activity promises in the increasingly globalized economy. The Act and its accompanying legislation are the critical foundation of a legal framework that will facilitate digital transactions across borders, and an E-Commerce sector. They provide for the overriding of existing rules that can constrain the growth of E-Commerce while, at the same time protects the public interest.

6. More specifically, the ETA provides for

• the recognition of the legal effect, validity, admissibility and enforceability of digital transactions, electronic signatures, communications, records and electronic contracts, in satisfaction of written and paper requirements under the law⁴;
• the admissibility and evidential weight of electronic records in legal proceedings;
• the protection of data and the retention of individual choice by restricting disclosure of information that has been obtained in these transactions to the consent of the natural person or business; and its use to the investigation of any criminal offence or criminal proceedings, or certain civil proceedings; or to the carrying out of prescribed public functions;
• a process of certification and verification that binds the identity of a particular party to a particular signature.

6.1. The Act also provides for the Minister to make regulations in respect of encryption, penalties for contravention of disclosure provisions and for records management in relation to the recording of the time and place of dispatch and receipt of electronic records.

6.2. In this way the Act seeks to address user confidence by addressing concerns over privacy, security, and contract enforcement⁵.

7. The considerable potential that the Internet promises for commercial and business expansion is based on the characteristics of the Internet.

• Unlike the proprietary networks of the past, the Internet is an open network and the software that makes it work is widely available,
• it can be installed for free - the rapid technological innovations have resulted in considerably reduced prices of both computers and computer software.
• the telecommunications networks on which the Internet operates, and the Internet Service Providers (ISPs) who sell access to it, are privately owned, however, telecommunications sectors across the world have been forced to liberalise in response to national and other pressures.

8. The result of all of this is that Internet access has become relatively inexpensive; its quality is increasingly improving; and it is widely diffused. As by its nature it allows the interconnection of extensive information and powerful communication systems, the opportunity exists for buyers and sellers to be brought together, new markets to emerge, and transactions that are possible on-line to take place, all of this in a global environment that is unrestrained by time and space.

9. Barbados is already a well-established international financial sector with more than 6,500 financial and business entities of substance licensed to do business on the Island. This reputation and success are based on its low tax regime, and a legal framework designed specifically to facilitate International Business Companies, Offshore Banks, Foreign Sales Corporations, Exempt (Captive) Insurance Companies, Societies with Restricted Liability (Limited Liability Companies), International Trusts and Ship Registration.

10. The existing legal environment is complemented by Barbados’ reputation as a clean jurisdiction⁶, a network of more than ten bilateral tax treaties⁷ and financial services legislation, and its stable political, legal, financial and administrative systems. The Island also possesses a large and growing pool of highly trained legal, accounting and management professionals, and a highly educated and trained population⁸, well known for its more than 98% literacy rate.

11. With this reputation, its potential for exploiting E-Commerce is also substantial. As a small and well developed country, its economy has for many years been fully integrated with the international and regional economy. For more than 15 years it has fostered and developed an Information Technology sector so that the country is now recognised as a highly developed and well organised offshore IT location. The country’s business sectors are supported by a modern reliable and speedy international communications system that provides T1 connectivity, distance dialing, international database access and leased circuit facilities at any bandwidth to the Industrialised world⁹.

12. These endowments represent both attractive opportunities for investment in the Information Technology sector as well as and in Commerce, in such activities as marketing and selling, procurement, treasury management, the supply of digital goods: music, video training software, and payroll and other corporate functions that lend themselves to electronic transactions and that can take advantage of low taxes.

13. The ETA and the legislation it anchors must be seen as strengthening and expanding the country’s opportunities as an International Financial Centre. In relation to E-Commerce however, they should be regarded only as the initial though significant, beginnings of fostering and encouraging a legal and regulatory framework. In this connection one other important legislative area is already calling for immediate attention by policy makers, the matter of taxation in an electronic environment.

14. The issues relating to taxation for E-Commerce were recognised and debated by the OECD countries sometime ago when at Ottawa in 1998 they adopted the Taxation Framework Conditions that addressed the four areas of international direct taxation, consumption taxes, tax administration and tax treaties. Since then Technical Committees set up by the Committee on Fiscal Affairs have been deliberating and consulting with business and government interests for a consensus. Much progress has been made but the issues remain unresolved at this time. These include whether the location of the website or the server should constitute permanent establishment for direct tax purposes; the place of consumption for consumption taxes as well as collection mechanisms; tax compliance issues of assessment, audit and collection and payment in an electronic environment as these relate to tax administration and the characterisation of electronic transactions in the context of tax treaties.

15. As this work has proceeded and against the background of recent OECD actions against certain International Financial Centres, low tax jurisdictions have been alerted to the need to monitor the activities of this Committee closely to ensure that this necessary and highly desirable exercise designed to adjust to and facilitate the application of the telecommunications revolution to Commerce with its beneficial results for economic efficiency and welfare is not used as a cover to stymie and restrict the potential opportunities of developing countries in the area of commerce generally.

1. Of 1994, of the Laws of Barbados.
2. Chapter 1, of the Laws of Barbados
3. Of 2000, of the Laws of Barbados.
4. As such, "placing them on a legal footing equivalent to that of paper based transactions" Reginald Farley, Ministry of Industry and International Business; Offshore Finance Canada, Nov/Dec2000, Offshore Legislative Reports, by Elliot Brown.
5. The Act which is based on a law passed by the US Congress, (and which is also along the lines of UNICITRAL the UN’s model), therefore makes the same basic principles applied by the US Congress, applicable to financial services in Barbados.
6. Through its enactment of such legislation as the Barbados Money Laundering (Prevention and Control) Act (drawn up in 1998 to reassure investors that Barbados was no tax haven) and its Proceeds of Crime Act, Barbados was placed on the white list of the Financial Action Task Force (FATF) for dealing with money laundering problems, and is also a Qualified Intermediate Jurisdiction for the US Internal Revenue Service.
7. Barbados is currently party to eleven such agreements to avoid double taxation; namely, treaties with the Caribbean Common Market (CARICOM), the United States, Canada, the United Kingdom, Finland, Sweden, Norway, Switzerland, Peoples Republic of China, Cuba and Venezuela, with efforts ongoing to expand the number of countries with which there are treaties (regions targeted include, South America, Europe and Asia.
8. The Barbados government has developed programs like Edutech 2000, which wired public schools to the Internet, and government organisations such as the Barbados Investment and Development Corporation (BIDC) have sought to ensure that curricula in the nation’s tertiary institutions involve the use of computers.
9. Barbados has the third highest level of telephone penetration in the Americas (79%), and with the recent voluntary dismantling by Cable & Wireless of its telecommunications monopoly, corporate networks are more likely to benefit from a significant reduction in rates through market competition.