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Bahamian Politics Last Updated: Feb 13, 2017 - 1:45:37 AM


Hon. Ryan Pinder on the FATCA Bill
Jul 22, 2015 - 6:29:27 PM

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Nassau, Bahamas - The following are Remarks by Hon. L. Ryan Pinder, Member of Parliament for Elizabeth on the FATCA Bill, delivered on July 22nd, 2015:

Introduction

I rise on behalf of the constituents of Elizabeth to contribute to the debate on the Bahamas and United States of America Foreign Account Tax Compliance Agreement Bill, 2015. 

Today we debate a necessary piece of legislation in order to continue the mandate in the financial services industry to continue the Bahamas as a jurisdiction which is satisfying all of the international mandates of best practices, but doing so in a fashion that differentiates the Bahamas as a world leader, and in a manner where legitimate financial confidentiality is preserved as best as possible. 

Before I speak in more detail about this legislation and some of the important developments leading up to the finalization of this process, I would like to speak about certain matters which are underway in the Elizabeth constituency.

Elizabeth

In Elizabeth this summer we have undertaken a significant amount of community development projects.  When I speak of community development projects, it is important to note that these primarily address two primary goals, to improve the constituency from a physical capital improvement basis, and to improve the constituency from a social, human capital basis.

Capital Development – From the physical improvement aspect, we have undertaken a number of improvements, some with the help and coordination by the Ministry of Works.  Thelma Gibson School has had a new parking area built for the parents of students to park, something that was desperately needed.  The large park in Elizabeth Estates is currently undergoing a significant improvement program, with all courts and parking being re-surfaced, and the goal to develop the vast green space into a sports and recreation area.  The beach in St. Andrews Beach Estates is currently undergoing significant cleaning, clearing and improvements being built on it for the community.  The development of Malcolm Creek is undergoing a significant maintenance project to ensure all of the work that was done prior is preserved.  There is an ongoing lot clearing initiative to preserve the appearance and safety of the community.  All of these projects and additional projects slated for later this year are to improve the living environment and appearance of the Elizabeth constituency.

Human Capital – In addition to the physical capital projects we have undertaken in Elizabeth, we likewise believe that human capital and development is an important component of representation and investment in the Elizabeth constituency.  Monday was the first day of our Elizabeth Youth Camp where children of the community will have a 5 week camp n which they learn Bible studies, crafts, computers, and athletics.  This program will give the youth of the community a positive and educational activity during these summer weeks where they otherwise would not have anything to do.

We are also launching a second chance entrepreneurial program in Elizabeth to address one of the most vexing problems of the country.  In many instances Bahamians who have had some trouble and have a minor criminal past or history are foreclosed from the workplace, a major contributor to our youth unemployment in the country.  In Elizabeth we are hosting a second chance entrepreneurial program where these individuals will be educated and trained in entrepreneurial ventures, providing them with the foundation needed for economic opportunity.

In Elizabeth we also believe that the church has a positive impact in the lives of the youth and their positive development.  We have distributed financial contributions to each of the surrounding churches for specific use in their youth summer programs, to again provide a basis for youth development in these summer months.  We have also secured computers to be donated to the two community centers in Elizabeth, as well as to Thelma Gibson Primary School for its computer lab.  Computer training and access is fundamental in today’s world as a tool for advancement and opportunity.

These are just some of the current projects that are underway in Elizabeth to contribute to the development of the community and the people that live in the constituency.

FATCA

I now turn to the legislation we debate today, the Foreign Account Tax Compliant Act.  Before I address the specifics of FATCA, I think it important to highlight the extreme level of incompetence of the former FNM administration in this context.  Coming to office there was no work done by the former FNM Government on such a fundamental issue.  I was advised that the issue was brought to Cabinet in the FNM Government and the responsible minister was instructed to not deal with the issue.  Anyone who would understand FATCA and its implications would recognize the complete incompetence and negligence of the former FNM administration in giving this instruction.  We, the PLP Government, addressed the mater with urgency, in a complete and comprehensive fashion demonstrating to the world how a focused and comprehensive Government acts and puts the Bahamas in the best position possible.

FATCA was signed into United States law in 2010 through the US Hiring Incentives to Restore Employment Act.  FATCA came into force on 1st January, 2013 and has the effect of imposing new reporting requirements on financial institutions throughout the world to the United States Internal Revenue Service (IRS) with respect to certain information on US persons and requires non-US entities to provide specific attestations about any US owners.  Financial institutions that do not comply with the FATCA requirements face a 30% withholding tax on all of their US payments and will be deemed a “non-Participating Foreign Financial Institution”.

FATCA has far reaching implications on financial institutions throughout the world and will require significant expense and training for financial institutions throughout the world.  FATCA compliance can be achieved in two ways:  (a) by FFIs entering into agreements individually and directly with the IRS; alternatively (b) where a country’s laws prohibit financial institutions from entering into such agreements, the government of that country may enter into an Inter-Governmental Agreement (IGA) with the United States Government.  The Government of the Bahamas has agreed that the The Bahamas shall achieve compliance under the United States Foreign Accounts Tax Compliance Act by negotiating and entering into a Model 1 Intergovernmental Agreement with the United States Department of the Treasury.  This IGA is attached as a Schedule to the Bill we debate today.

Under a Model I Intergovernmental Agreement, the government enters into an agreement with the United States whereby the Competent Authority, in our instance the Ministry of Finance, would be responsible for directing its financial institutions (as defined under FATCA) to compile the relevant information.  The government would then be responsible for collecting this data electronically from the relevant financial institutions.  The Competent Authority would be obligated to report that data to the Internal Revenue Service (IRS) annually.

We chose a Model 1 approach for the following reasons:

a. The Model 1 Agreement provides the greatest level of preferential treatment in terms of exemptions for key Bahamian products;

b. Model 1 should result in lower costs and reporting burdens to Bahamian FFIs.

c. While Model 1 requires that a reporting infrastructure be developed within the Competent Authority, such an infrastructure may be necessary in the long run given international developments in tax cooperation.  Additionally, the Government has been advised that establishing such a reporting infrastructure should not be prohibitively expensive.

d.  Both agreements pierce the veil of confidentiality with the aim of facilitating tax compliance with a foreign tax authority.  However, Model 1 provides the greatest control for The Bahamas Government and its financial institutions over interactions between the IRS and Bahamian financial institutions.  Model 1 further ensures that the directives for FATCA compliance is based on Bahamian implementing law.

I would like to describe briefly how the approach of this PLP Government differed from that of the former FNM Government, where I already noted the issue was ignored from the highest level of Government.  When we came to Government, the financial services industry was very concerned about the lack of knowledge, progress, and developments with respect to FATCA.

The Ministry of Financial Services initiated its education and private sector consultation work programme on FATCA in September 2012.  In January, 2013 the Ministry launched its FATCA strategy document which provided a road map to achieving FATCA compliance.  The strategy provided an outline of the key issues and definitions related to FATCA.  To ensure that the views of the industry were included in the work of the Ministry with respect to FATCA, the strategy also called for the installation of a small advisory working group.     The advisory group included representatives from the private sector and the Attorney General’s Office, the Ministry of Finance and the financial sector regulators.

On 1st March, 2013, I led a delegation to Washington, D.C. to meet with US Treasury Department and Internal Revenue Service (IRS) officials to commence discussions on FATCA.  I provided the US officials with a brief overview of the positive 10-year experience between the two countries with respect to the TIEA process.  It was noted that The Bahamas was committed to honouring its treaty obligations.  In that initial meeting, I expressed an interest in exploring an IGA with the United States and outlined The Bahamas key concerns with respect to FATCA, namely:

• The registration and FFI agreement requirement for trusts managed by professional trustees were extremely onerous and essentially created a trust register for all non-US trusts while US trusts were not subject to the same provisions;

• The extent of interaction contemplated between the IRS and the Bahamian financial firms under Model 2, including the information which could be requested and the possibility of audits by the IRS of FFIs;

•  The process for appropriately accommodating legal challenges and jurisdictional matters;

•  The possibility of a combined Model I and Model II approach, given the international nature of The Bahamas’ financial sector where the head offices of various firms would be utilizing a variety of compliance methods depending on their jurisdiction.

•  The need for a regional FATCA Workshop in The Bahamas in April/May 2013.

Notwithstanding the US government sequester at the time, as a result of sustained effort on the parts of both the Ministry of Financial Services and the US Treasury, plans were finalized for The Bahamas to host the first regional conference on FATCA facilitated by United States Treasury and Internal Revenue Service officials at the British Colonial Hilton Hotel.  The meeting attracted over 300 professionals including government and private sector officials from at least 10 Caribbean countries.  In addition to the open sessions of the meeting; the Ministry had arranged for a closed door session with regional government officials and private bilateral consultations with 10 Caribbean governments.

The Bahamas met privately with the US officials before the FATCA conference on 8th April, 2013.  In that meeting, my Ministry forcefully and articulately advanced The Bahamas’ concerns with the requirement that all trusts managed by professional trustees (even those without US interests) be required to register and enter into an FFI agreement with the IRS.  It was our position that this wrongfully created a public trust registry, an attempt to through the back door breach a fundamental component of legitimate financial confidentiality, something that would have far reaching effects on our financial services industry. 

On 9th April, 2013 the day following our meeting mentioned above, the US Treasury updated its FATCA exemption Annexes (Annex II) of both Model IGA agreements to include an exemption for “trustee sponsored trusts” such that a trust with a professional trustee, would be exempt from the registration and FFI agreement requirements where the due diligence and reporting (where there are US interests) are carried out by the professional trustee which is an FFI under FATCA.  This amendment was specifically a result of the negotiations between the USA and the Bahamas.  The significance of this amendment for The Bahamas trust industry cannot be overstated.  The Bahamas also met in further bilateral consultations with the US Treasury on 10th April, 2013.  In those meetings further exemptions were obtained under Model 1 for Private Trust Companies and certain Master Feeder Fund Structures under the “sponsored deemed compliant” categories.

All of these accomplishments in the negotiations of the IGA and the Bahamas approach to FATCA demonstrate the approach of this PLP Government, to ensure we are compliant with international best practices, but to do so in a way that positions our industry in the best possible position.  We are recognized the world over as innovative, strong and deliberate negotiators when it comes to international compliance matters and agreements.  Yes, compliance with FATCA is a necessity in today’s world, and passing this legislation to provide the legal authorization for industry and Government to comply is a fundamental component, which needs to be completed with haste.  But the approach of the Bahamas Government under this PLP Administration is how it is done, in a deliberate fashion creating opportunities for our industry and an approach in a logical, legal and fact based manner.  This PLP Government should be congratulated by all.

Bahamian Pensions.

I would like to make one recommendation to the Government of the Bahamas with respect to another FATCA initiative that must be completed quickly.  FATCA provides for an exemption for compliance with their onerous requirements to domestic pension plans and schemes that are properly regulated.  Historically our pension schemes in the Bahamas have not been regulated.  We have passed the Pensions Bill here in Parliament to provide a regulatory framework for Bahamian pension schemes.  This framework, however, is not yet in place as the Regulations are not complete.  This has resulted in Bahamian pension schemes not being able to fulfill the requirements for FATCA exemption, and now many are struggling with compliance, and having a negative effect on Bahamian pension participants.  I implore to the Government and the Ministry of Finance to complete the Regulations quickly, and bring into effect the regulatory regime for Bahamian pension schemes to ensure they meet the requirements for FATCA exemption.

OECD Common Reporting Standard

Unfortunately, FATCA is only the beginning of these automatic exchange initiatives.  The OECD has taken the lead from the United States and FATCA and has endeavored to create a framework of automatic exchange of financial information throughout the world.  The Standard for Automatic Exchange of Financial Account Information in Tax Matters (the “Standard”) was presented by the OECD to the G20 Finance Ministers during a meeting last September. The Standard provides for exchange of all financial information on an annual basis, automatically. Most jurisdictions have committed to implementing this Standard on a reciprocal basis with interested and appropriate jurisdictions.  On October 27th, 2014 the new OECD/G20 standard on automatic exchange of information was endorsed by all OECD and G20 countries as well as most major financial centres participating in the annual meeting of the Global Forum on Transparency and Exchange of Information for Tax Purposes in Berlin.  The Bahamas was one of the countries who committed to the new standard for automatic exchange, having to do so to ensure that it was not included on any forthcoming blacklists and not identified as a non-cooperative jurisdiction.

In committing to the Standard, however, The Bahamas under the leadership of this PLP Administration did so in a fashion where we would be differentiated from most others in how the Standard is implemented, again recognizing that you can be consistent with international best practices, while recognizing that legitimate financial confidentiality still can co-exist. 

At least 84 countries are covered under the Multilateral Competent Authority Agreement that will activate automatic exchange of information, based on the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.  This agreement causes certain exchange of information and other investigation obligations between all signatory countries, certainly what would seem to be an impossible endeavor.  These countries are utilizing the Multilateral agreement to implement the automatic exchange standard.

The Bahamas, under this PLP Administration, like in its approach to FATCA, thought it better to negotiate a position that was more objective, and made more sense from a business point of view.  Instead of signing onto a multilateral treaty that imposed onerous and possibly impossible obligations between dozens of countries, The Bahamas, through prolonged negotiations, chose to adopt the Standard without adopting the Multilateral Convention, preferring instead to implement exchange of information on a strictly bilateral basis (similar to FATCA intergovernmental agreement) – country to country.  These bilateral agreements will be negotiated with countries who approach The Bahamas, and only where the countries objectively demonstrate to The Bahamas that they must standards on confidentiality, data safeguards and proper use of information.  The Bahamas recognized and fully agreed that a receiving jurisdiction must meet comprehensive and objective standards of confidentiality and use of information before automatic exchange of information can be agreed.

Conclusion

The method in which The Bahamas negotiated FATCA, and especially the OECD Standard on Automatic Exchange has been recognized by countries throughout the world as innovative, progressive, and fundamental to the continued growth of the financial services industry, while maintaining consistent with international best practices.  I felt it necessary today to highlight the way in which these important considerations and agreements were negotiated by this PLP Government to demonstrate the difference between good and responsible Governance, and negligent and head in the sand governance of the prior FNM administration.  It is important to draw these distinctions in governance, especially as they pertain to the second industry of The Bahamas.  Until achievements are ultimately reached that show the method of Governance some people might regard the process or the arguments as unorthodox, but in all instances, the posture of governance of the PLP administration is to achieve the best position for the Bahamian people, its industries and economy while maintain a position of best practices.  I want to thank the Prime Minister of the Bahamas for the faith and trust he has in his Ministers to approach issues such as the ones I have described today in a method and fashion that is demonstrable of good governance for the Bahamian people.  Elizabeth supports this Bill. 

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