Nassau, The
Bahamas - In his contribution to the House of Assembly, on August 12, 2013,
Minister of Financial Services the Hon. Ryan Pinder said that The Bahamas Government
has agreed that the country shall achieve compliance under the United States
Foreign Accounts Tax Compliance Act (“FATCA”) by negotiating and entering into
a Model 1 Intergovernmental Agreement (IGA) with the United States Department
of the Treasury.
Minister
Pinder said: “The Government of The Bahamas has also agreed to the
establishment of an inter-Ministerial committee on FATCA under the leadership
of the Ministry of Financial Services be established with the following
mandate: to prepare an implementation strategy for FATCA, inclusive of the
draft FATCA Agreement; to prepare and issue a Request for Proposals (RFP) for
the development and implementation of a FATCA reporting system; to oversee all
aspects of the implementation of The Bahamas’ FATCA compliance and to oversee
the necessary legislative reforms.”
Minister
Pinder said that FATCA was signed into United States law in 2010 through the US
Hiring Incentives to Restore Employment Act and came into force on January 1,
2013, having 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 per cent
withholding tax on all of their US payments and will be deemed a
“non-Participating Foreign Financial Institution,” he said.
“FATCA has
far-reaching implications on financial institutions throughout the world and
will require significant expense and training for financial institutions
throughout the world,” Minister Pinder added.
The
Ministry of Financial Services, he said, initiated its education and private
sector consultation work programme on FATCA in September 2012. In January 2013, the Ministry launched its
FATCA strategy document that provided a road map to achieving FATCA compliance.
“The
strategy provided an outline of the key issues and definitions related to
FATCA,” Minister Pinder said. “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.”
Minister
Pinder pointed out that on March 1, 2013, he 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,” he said. “It was noted that The Bahamas was committed
to honouring its treaty obligations.”
Minister
Pinder said in that initial meeting, he 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 and the process
for appropriately accommodating legal challenges and jurisdictional matters.
Also among
the key concerns were 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 utilising a variety of compliance
methods depending on their jurisdiction and 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 my Ministry and the US Treasury, plans were finalised 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,” Minister Pinder said.
“The
meeting attracted over 300 professionals including government and private
sector officials from at least 10 Caribbean countries,” he added. “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.”
Minister
Pinder said The Bahamas met privately with the US officials before the FATCA
conference on April 8, 2013. In that
meeting, he continued, his 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.
Minister
Pinder added that the next day, on April 9, 2013, 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.
“The
significance of this amendment for The Bahamas trust industry cannot be
overstated,” Minister Pinder noted.
“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”.
Minister
Pinder said based on his Ministry’s “careful” review of the FATCA regulations,
the Model Intergovernmental Agreements, consultations with the US Treasury
Department and the IRS and consultations with industry, the Government of The
Bahamas decided that The Bahamas adopt the Model 1 FATCA agreement without
reciprocity based on the Model 1 Agreement provides the greatest level of
preferential treatment in terms of exemptions for key Bahamian products; and
the Model 1 should result in lower costs and reporting burdens to Bahamian
FFIs.
Minister
Pinder added that, while Model 1 requires that a reporting infrastructure be
developed within the Competent Authority, such an infrastructure might 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,” Minister Pinder said.
Both
agreements pierce the veil of confidentiality with the aim of facilitating tax
compliance with a foreign tax authority, he pointed out.
“However,
Model 1 provides the greatest control for The Bahamas Government and its
financial institutions over interactions between the IRS and Bahamian financial
institutions,” Minister Pinder said.
“Model 1 further ensures that the directives for FATCA compliance is
based on Bahamian implementing law.”