Barbados: Barbados Jurisdiction Gets ‘Stamp Of Approval' In Canadian Court Case

Last Updated: 26 August 2016
Article by Invest Barbados

As a result of a recent decision of the Tax Court of Canada in CIT Group Securities (Canada) Inc. v. The Queen, the stamp of approval has been given to the use of the IBFS sector as an avenue for international corporate and financial  planning that is tax efficient. 


The decision highlights the importance of an effective regulatory framework, as such a framework gives legitimacy to the entities that come within the purview of its jurisdiction. In order to qualify for a certain exception from Canada's passive income rules (referred to as the "FAPI" rules), CCG had to prove that its activities as a foreign bank (or as a trust company) were regulated under the laws of Barbados. In this case the regulator was the Central Bank of Barbados ("the Bank"), and the approving conclusions of Owen J. with respect to the self-contained regulatory mechanisms of both the Financial Intermediaries Regulatory Act, Chapter 324A of the Laws of Barbados ("FIRA"), and the Financial Institutions Act, Chapter 324A of the Laws of Barbados ("FIA"), as also the regulatory oversight by the Central Bank, were highlighted. In addition, the learned judge also lauded the approach of the Central Bank with respect to its circumspection regarding inquiries made by unknown persons.

Factual Outline

The Appellant, CIT Group Securities (Canada) Inc., is the Canadian parent corporation of CCG Trust Corporation ("CCG") which is a regular Barbados company licensed to carry on business pursuant to the Financial Institutions Act, Chapter 324 of the Laws of Barbados. The principal business of CCG was entering into financing transactions that resulted in the holding of high quality long-term debt. Where CCG was unable to realize this business objective, it would temporarily invest its available cash in short-term debt such as short-term deposits and convertible asset swaps until a better opportunity arose. 

CCG is owned by nine international business companies, all incorporated under the Companies Act, Chapter 308 of the Laws of Barbados and licensed pursuant to the International Business Companies Act, Chapter 77 of the Laws of Barbados.

The Appellant was reassessed for each of its taxation years 2003 to 2009 inclusive (the "Taxation Years"). The reassessments included in the income of the Appellant, as income from shares, amounts in respect of income earned by CCG during each of the Taxation Years on the basis that such income was 'foreign accrual property income' ("FAPI") rather than "income from an active business as defined in subsection 95(1) of the Income Tax Act of Canada. The aggregate amount assessed for the Taxation Years exceeded $200m.

CCG had sufficient substance and met other conditions so that its business was not a passive "investment business" as defined, such that the legal conclusions depended in part on more technical issues, under a separate deeming rule in paragraph 95(2)(l) of the statute, such as whether CCG carried on its business as a "foreign bank" and whether its business was "regulated" under Barbados law."  Based on a very detailed textual, contextual and purposive interpretation, Owen J. concluded that these conditions were also met so the exception to this separate deeming rule was applicable.  Thus, CCG's income was "income from an active business" and not FAPI.

In reviewing  the case, Owen J.  cited from the decision of the Supreme Court of Canada in Shell Canada Ltd. v. Canada (1999), where that court opined as follows:

"... this Court has made it clear in more recent decisions that, absent a specific provision to the contrary, it is not the courts' role to prevent taxpayers from relying on the sophisticated structure of their transactions, arranged in such a way that the particular provisions of the Act are met, on the basis that it would be inequitable to those taxpayers who have not chosen to structure their transactions that way. ... Unless the Act provides otherwise, a taxpayer is entitled to be taxed based on what it actually did, not based on what it could have done, and certainl y not based on what a less sophisticated taxpayer might have done.

Inquiring into the "economic realities" of a particular situation, instead of simply applying clear and unambiguous provisions of the Act to the taxpayer's legal transactions, has an unfortunate practical effect. This approach wrongly invites a rule that where there are two ways to structure a transaction with the same economic effect, the court must have regard only to the one without tax advantages. With respect, this approach fails to give appropriate weight to the jurisprude nce of this Court providing that, in the absence of a specific statutory bar to the contrary, taxpayers are entitled to structure their affairs in a manner that reduces the tax payable: "... An unrestricted application of an "economic effects" approach does indirectly what this Court has consistent ly held Parliament did not intend the Act to do directly."

The Expert Testimony

In addressing the ‎regulation by the Bank, the expert witnesses, Sir Trevor Carmichael, Q.C. and Ms. Mary Mahabir, Q.C., testified that in the course of their law practices in Barbados they had regular contact with the  Bank over a period of decades.  Owen J. opined that the Bank was a model regulator as the evidence established that  it does not relinquish sensitive details regarding its licensees on  a mere request of a lawyer from the Canadian Department of Justice but rather shared such information with senior attorneys with whom it has a sound relationship characterised by trust and longevity, as in the case of the two expert witnesses of the appellant,  and this was  considered appropriate and laudable.

The expert evidence was significant in establishing the substance of the regulatory regime and the status of CCG as a regulated entity.  This aspect of the case was raised because the Department of Justice's lawyers took the unusual step of challenging the evidence of CCG having the status of a licensed entity, going so far as to try to exclude written evidence to that effect. That type of approach did not impress the Court.

The Court noted the form of regulation, the conduct of audits, the requirements for filings under the law and the compliance by the local entity CCG which were, in Justice Owen's words "both enforced and satisfied".


The decision of the Tax Court of Canada may be appealed to the Federal Court of Canada, so the outcome of this dispute remains unclear at this point.  Nevertheless, it is a welcome sign to see quality legal analysis that strikes an appropriate balance between the text, context and purpose of the law and the taxpayer's right to arrange his or her affairs within the confines of the law.

Recent amendments to Canada's FAPI rules and such court challenges, as well as broader international developments, have created concerns in the sector, so it is quite positive that Canadian courts apply such high standards of quality.

The significance of this judgment:

Justice Owen's erudite decision has not only acknowledged the legitimacy of the Central Bank of Barbados as a sound regulator but has appropriately recognized the taxpayer's right to engage in tax structuring within the confines of the law. His insightful and analytical dissection of the relevant sections of the Canadian Income Tax Act is indicative of his thorough understanding of the proper application of the statute and his respect for the law and for the sovereignty of Barbados."

Sadie Dixon is the Legal Counsel of the Central Bank of Barbados.  She is a member of the Joint Policy Working Group on International Business and Investment Promotion (JPWG), and the Central Bank's International Business and Financial Services Committee.

"With this decision, Owen J. has set a standard for statutory interpretation that will be very difficult to exceed." 

Angelo Nikolakakis is an international tax lawyer based in Montreal, and provides services to Ernst & Young LLP. He has spoken and written on numerous occasions on various topics of corporate and international tax law.

Written by Andrew Thornhill, Attorney at law, 

George Walton Payne & Co.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions