SECOND PROTOCOL AMENDING THE CONVENTION BETWEEN THE UNITED 

STATES OF AMERICA AND BARBADOS FOR THE AVOIDANCE OF DOUBLE 

TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO 

TAXES ON INCOME SIGNED ON DECEMBER 31, 1984 

The United States of America and Barbados, 

Desiring to amend the Convention between the United States of America and Barbados for the 

Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on 

Income signed at Bridgetown on the 31st day of December 1984, as amended by a Protocol 

signed at Washington, D.C. on the 18th day of December 1991 (in this Protocol referred to as 

the “Convention”), 

Have agreed as follows: 
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ARTICLE I 

Article 1 of the Convention is amended by omitting the last sentence of paragraph (3) and 

substituting “For this purpose, the term ‘citizen’ shall include a former citizen or former longterm resident whose loss of such status has as one of its principal purposes the avoidance of tax 

(as defined under the laws of the Contracting State of which the person was a citizen or longterm resident), but only for a period of 10 years following such loss.”. 

ARTICLE II 

Article 22 (Limitation on Benefits) is omitted and the following Article is substituted: 

“Article 22 

Limitation on Benefits 

1. A person that is a resident of a Contracting State and derives income from the other 

Contracting State shall be entitled, in that other Contracting State, to all the benefits of this 

Convention only if such person is: 

(a) an individual; 

(b) a Contracting State or a political subdivision or local authority thereof; 

(c) a company, if: 

i) its principal class of shares is: 

(a) listed on a recognized stock exchange located in the Contracting 

State of which the company is a resident; 

(b) primarily traded on a recognized stock exchange located in the 

Contracting State of which the company is a resident or, in the case of a 

company that is resident in Barbados, primarily traded on one of the 

recognized exchanges identified in paragraph 4(b) of Article 22; and 

(c) regularly traded on one or more recognized stock exchanges; or 
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ii) (a) at least 50 percent of each such class of shares in the company is 

owned directly or indirectly by companies entitled to benefits under 

clause i), provided that in the case of indirect ownership, each 

intermediate owner is a person entitled to benefits of the Convention 

under this clause ii); and 

(b) the company satisfies the requirements of clause ii) of paragraph 1(d) 

of this Article; 

(d) a resident of a Contracting State other than an individual if: 

i) on at least half the days of the taxable year, more than 50 percent of the 

beneficial interest in that person (or in the case of a company, more than 50 

percent of the number of shares of each class of whose shares) is owned, directly 

or indirectly, by residents of that State that are entitled to the benefits of this 

Convention under subparagraphs (a), (b), (c)i), (e) or (f) (other than a person 

described in paragraph 6 of this Article), provided that, in the case of indirect 

ownership, each intermediate owner is a resident of that Contracting State; and 

ii) less than 50 percent of the person’s gross income for that taxable year is 

paid or accrued, directly or indirectly, to persons who are not residents of that 

Contracting State entitled to the benefits of this Convention under subparagraphs 

(a), (b), (c)i), (e) or (f) (other than a person described in paragraph 6 of this 

Article) in the form of payments that are deductible for the purposes of the taxes 

covered by this Convention in the State of which the person is a resident (but not 

including arm’s length payments in the ordinary course of business for services 

or tangible property); 

(e) an entity that is organized and operated exclusively for religious, charitable, scientific, 

literary or educational purposes and that, by virtue of that status, is generally exempt from 

income taxation in its Contracting State of residence; or 

(f) a plan, scheme, fund, trust, company or other arrangement established in a Contracting 

State that is operated exclusively to administer or provide employee benefits and that, by 

reason of its nature as such, is generally exempt from income taxation in that State, provided 
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that more than half of the beneficiaries, members or participants, if any, in such organization 

are persons that are entitled, under this Article, to the benefits of this Convention. 

2. (a) A resident of one of the Contracting States will be entitled to the benefits of the 

Convention with respect to an item of income derived from the other State, regardless of 

whether the resident is entitled to benefits under paragraph 1, if the resident is engaged in the 

active conduct of a trade or business in the first-mentioned State (other than the business of 

making or managing investments, unless these activities are banking or insurance activities 

carried on by a bank or insurance company), and the income derived from the other Contracting 

State is derived in connection with, or is incidental to, that trade or business and that resident 

satisfies any other conditions for obtaining such benefits. 

(b) If the resident or any of its associated enterprises carries on a trade or business 

activity in the other Contracting State which gives rise to an item of income, sub-paragraph (a) 

of this paragraph shall apply to such item only if the trade or business activity in the firstmentioned State is substantial in relation to the trade or business activity in the other State. 

Whether a trade or business activity is substantial for purposes of this paragraph will be 

determined based on all the facts and circumstances. In any case, however, a trade or business 

will be deemed substantial if, for the preceding taxable year, or for the average of the three 

preceding taxable years, the asset value, the gross income, and the payroll expense that are 

related to the trade or business in the first-mentioned State equal at least 7.5 percent of the 

resident’s (and any related parties’) proportionate share of the asset value, gross income and 

payroll expense, respectively, that are related to the activity that generated the income in the 

other State, and the average of the three ratios exceeds 10 percent. 

(c) In determining whether a person is “engaged in the active conduct of a trade or 

business” in a Contracting State under sub-paragraph (a) of this paragraph, activities conducted 

by a partnership in which that person is a partner and activities conducted by persons connected 

to such person shall be deemed to be conducted by such person. A person shall be connected to 

another if one possesses at least 50 percent of the beneficial interest in the other (or, in the case 

of a company, at least 50 percent of the aggregate vote and value of the company's shares or of 

the beneficial equity interest in the company) or another person possesses, directly or 

indirectly, at least 50 percent of the beneficial interest (or, in the case of a company, at least 50 
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percent of the aggregate vote and value of the company’s shares or of the beneficial equity 

interest in the company) in each person. In any case, a person shall be considered to be 

connected to another if, based on all the relevant facts and circumstances, one has control of the 

other or both are under the control of the same person or persons. 

(d) For purposes of this paragraph, 

i) a resident of a Contracting State will be treated as a bank only if: 

(a) it is licensed to accept deposits from residents of the Contracting 

State of which it is a resident and to conduct, in that State, lending or other 

banking activities; 

(b) it regularly accepts deposits from customers who are residents of the 

Contracting State of which it is a resident in the ordinary course of its business 

and the amount of deposits shown on the company’s balance sheet is substantial; 

and 

(c) it must regularly make loans to customers in the ordinary course of 

its trade or business; 

ii) a resident of a Contracting State will be treated as an insurance company 

only if: 

(a) it is licensed to insure risks of residents of the Contracting State of 

which it is a resident; and 

(b) it regularly insures (not including reinsurance) risks of customers 

who are residents of the Contracting State of which it is a resident; and 

iii) whether the activities of a resident of a Contracting State constitute an active 

trade or business must be determined under all the facts and circumstances. In 

general, a trade or business comprises activities that constitute (or could 

constitute) an independent economic enterprise carried on for profit. To 

constitute a trade or business, the activities conducted by the resident ordinarily 

must include every operation which forms a part of, or a step in, a process by 

which an enterprise may earn income or profit. A resident of a Contracting 

State actively conducts a trade or business if it regularly performs active and 

substantial management and operational functions through its own officers or 
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staff of employees. In this regard, one or more of such activities may be carried 

out by independent contractors under the direct control of the resident. 

However, in determining whether the corporation actively conducts a trade or 

business, the activities of independent contractors shall be disregarded. 

3. A person that is not entitled to the benefits of this Convention pursuant to the provisions 

of paragraph 1 may, nevertheless, be granted the benefits of the Convention if the competent 

authority of the State in which the income in question arises so determines. 

4. For the purposes of paragraph 1, the term “recognized stock exchange” means: 

(a) the NASDAQ System owned by the National Association of Securities Dealers, Inc. 

and any stock exchange registered with the Securities and Exchange Commission as a national 

securities exchange for purposes of the Securities Exchange Act of 1934; 

(b) the Barbados Stock Exchange, the Jamaica Stock Exchange and the Trinidad Stock 

Exchange; and 

(c) any other stock exchange agreed upon by the competent authorities of the 

Contracting States. 

5. The competent authorities will consult together with a view to developing a commonly 

agreed application of the provisions of this Article. The competent authorities shall, in 

accordance with the provisions of Article 26 (Exchange of Information), exchange such 

information as is necessary for carrying out the provisions of this Article and safeguarding, in 

cases envisioned therein, the application of their domestic law. 

6. (a) Notwithstanding that a person otherwise would qualify for the benefits of the 

Convention under paragraphs 1 or 2 of this Article without regard to this paragraph, a person 

that is entitled to income tax benefits under the provisions of a special tax regime shall be 

entitled to receive only the benefits of this Convention (subject to all applicable conditions or 

limitations) other than the benefits of Articles 10 (Dividends), 11 (Interest) and 12 (Royalties) 

of this Convention. For purposes of the preceding sentence, to the extent that a partnership, 

estate or trust is treated as a resident of a Contracting State under paragraph 1 of Article 4 

(Residence) by reason of income of such partnership, estate or trust being subject to tax in the 

hands of one or more persons described in this paragraph, such partnership, estate or trust, to 
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that extent, shall be treated as a person that is entitled to income tax benefits under the 

provisions of a special tax regime. 

(b) A special tax regime is any legislation or administrative practice that provides for an 

effective tax rate substantially lower than the generally applicable tax rate for companies or 

individuals, as appropriate.”. 

ARTICLE III 

Article 26 (Exchange of Information) is amended by inserting the following new paragraph 

and re-numbering paragraph 4 as paragraph 5: 

“4. Notwithstanding paragraph 3, the competent authority of the requested State shall, 

in accordance with paragraph 1, obtain and provide information held by financial institutions, 

nominees or persons acting in an agency or fiduciary capacity (not including information that 

would reveal confidential communications between a client and an attorney, solicitor or other 

legal representative, where the client seeks legal advice), or respecting interests in a person.”. 

ARTICLE IV 

1. This Protocol shall be subject to ratification and instruments of ratification shall be 

exchanged as soon as possible. 

2. This Protocol shall enter into force upon the exchange of instruments of ratification and 

shall have effect: 

(a) in respect of taxes withheld at source, for amounts paid or credited on or after the 

first day of the second month next following the date on which this Protocol enters into force; 

(b) in respect of other taxes, for taxable years beginning on or after the first day of 

January next following the date on which this Protocol enters into force. 
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IN WITNESS WHEREOF, the undersigned, duly authorized thereto by their respective 

Governments, have signed this Protocol. 

DONE at Washington, in duplicate, this fourteenth day of July, 2004. 

FOR THE GOVERNMENT OF FOR THE GOVERNMENT OF 

THE UNITED STATES OF AMERICA: BARBADOS: