Barbados-U.S. Protocol Enters Into Force, Treasury Announces

"This protocol reflects important improvements to the U.S.- Barbados tax treaty, demonstrating the commitments of our respective governments to keeping the provisions of the treaty up to date in light of economic developments," said Deputy Secretary Bodman. "We are pleased that our two countries were able to work together to make the changes necessary to preserve and enhance the tax treaty relationship."

The United States and Barbados signed the protocol at a ceremony at the Treasury Department on July 14, 2004. The United States Senate approved the protocol on October 11, 2004.

The protocol amends the existing tax treaty, which dates back to 1984. The protocol was negotiated to ensure that the U.S.-Barbados tax treaty operates to accomplish its intended purpose of addressing double taxation and cannot be used inappropriately to eliminate taxation altogether. The modifications reflected in the protocol prevent the potential for exploitation of the treaty by U.S. corporations to facilitate inappropriate U.S. tax reductions in connection with a corporate inversion transaction. The protocol also provides that the treaty's reductions in U.S. withholding taxes do not apply in the case of entities that are not subject to the generally applicable Barbados tax system and that benefit instead from a preferential tax regime.

With the entry into force today, the protocol generally will be effective for taxable years beginning on or after January 1, 2005. The provisions of the protocol relating to withholding taxes will be effective for amounts paid or credited on or after February 1, 2005.