Management Charges


In general/lay terms, a management charge/fee is a payment made by a company in one jurisdiction to a company in another jurisdiction for the provision of certain management services provided to it by the other.


In the specific context of developing countries, it is not uncommon for a local subsidiary of a multi-national company, for example, to pay its parent (often located in a developed country) for the provision of certain centralized services and expertise in order to facilitate its operations in the local Caribbean territory (e.g. accounting, treasury services and information technology).

In this manner, many multinational companies operate like a singular global entity with a core strategic vision and centralized nervous system, but with subsidiaries/branches that have delegated operational oversight in the specific regions it carries on business. Simply put, it is more efficient to operate in this manner than for the multinational to replicate the Head Office’s core functions in each territory it carries on business.

Naturally, each branch/subsidiary will pay its head office/parent for the provision of these “management” or “shared services” instead of attempting to obtain these services  within the local territory  (some of which may not be cost effectively available in the local territory in any event).

Shared Office Costs

From the perspective of the local Caribbean tax authorities, however, such payments represent flows of currency outside of the country. Further, in the absence of transfer pricing legislation, unregulated payments in respect of “management charges” to a non-resident head office/parent may appear to provide an opportunity for multinationals to improperly strip profits from its Caribbean branch/subsidiary and thereby erode the local tax base.

In order to deal with these potential currency and tax leakages, many Caricom countries:

(a)    Levy withholding tax on such payments made to non-residents; and

(b)    Limit the ability of the local branch/subsidiary to deduct payments made in respect of management charges paid to non-residents in computing their taxable income.


Table: Country Overview


Country Defined in Statute∇ Restriction on Deductibility Withholding Tax
Antigua No No


25% (Companies)

Barbados No No 15%
Belize Yes No 25%
Dominica Yes 5% 15%
Grenada Yes 1% – 5% 15%
Guyana YesΩ 1% 20%
Jamaica No No 33.3%
Montserrat No 5% 20%
St. Kitts Yes 5% 15%
St. Lucia Yes 10% 25%
St. Vincent Yes 5% 20%
Suriname 0%
Trinidad & Tobago Yes 2% 15%

∇ In the absence of a specific statutory definition, regional practitioners must have regard to definitions adopted in the local courts, as is consistent with the Caribbean’s common law tradition.

Ω The statutory definition for the purposes of the “restriction” may differ from the definition for the purposes of “withholding tax”.

‡ To be updated.



From the perspective of the multinational, the combination of withholding tax on payments made to the head office/parent and the domestic restriction on the tax deductibility of expenses incurred in respect of management charges payable to non-residents makes “management charges” a major consideration when determining the viability of doing business within a Caribbean territory.

Indeed, one may posit the view that in the context of a branch/head office arrangement a combination of a domestic restriction of management fee deductibility and a withholding tax on a payment in respect of said fees to its head office is a punitive form of double taxation in the region.


(i)                  the local branch operation is paying more tax than its local counterpart on the basis that it cannot deduct what would otherwise be treated as a legitimate business expense for corporation tax purposes; and

(ii)                the branch’s non-resident head office (which, in law, is the same legal entity as the branch) is also incurring the withholding tax burden on the gross payment.

Key questions


In light of these issues, amongst a host of others, it is particularly important for multinationals to obtain Caribbean tax planning advice concerning:

(i) What are the relative advantages and disadvantages of operating in the locality as a branch vs. subsidiary?

(ii) What is the definition of “management charge” in the domestic tax law of the applicable Caribbean territory?Ω

(iii) What is the definition of “management charge” in the applicable Double Taxation Treaty governing the relationship between the head office/parent company and its branch/subsidiary? Does the “Management Fee” article apply on the facts?

(iv) How are chargeable profits of “permanent establishments” determined pursuant to the applicable Double Tax Treaty?

(v) What is a “payment” and where does it “arise” for the purposes of the domestic tax law of the applicable Caribbean territory?

(vi) What are the implications of the “Associated Enterprises”, “Limitation on Benefits” and “Non-Discrimination” Articles in the applicable Double Tax Treaty?

CASE LAW (Downloadable Content for Members Only)

Against the background of these issues, the following cases are particularly noteworthy:


•  Board of Inland Revenue v Young (Selwyn), (1997) 53 W.I.R. 335

•  William H Scott v The Board of Inland Revenue, No. I 80 of 1983

•  Shell Trinidad Limited v The Board of Inland Revenue, Appeal No. 1 of 2011

•  Esso Standard Oil S.A. Limited v The Board of Inland Revenue, Nos. I 114 – 125 of 1982

•  Commissioner of Inland Revenue v Hong Seng Bank Limited, Privy Council Appeal No. 36 of 1989

•  The Appeal Commissioners v The Bank of Nova Scotia, Privy Council Appeal No. 65 of 2012


This blog is published by the site administrators of on June 25th, 2016 for discussion purposes only. Should you require legal advice, please contact us and we shall be happy to make a referral to a local tax practitioner.


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