By NATARIO McKENZIE
Tribune Business Reporter
THE BAHAMAS is working towards a June 1 deadline for a final decision on how it will approach the Foreign Account Tax Compliance Act (FATCA) Financial Services Minister Ryan Pinder said yesterday, saying that ultimately this jurisdiction could come out “ahead of the competition”.
“We have a deadline of June 1 where essentially we have to make a decision on whether we will undertake and inter-governmental agreement, then secondly which intergovernmental agreement we will undertake and then finalise the negotiations with the United States. We’re up against a June 1 deadline in order to have our private sector prepared for a January 2014 deadline to start the process. We believe that if we can make a recommendation in May to Cabinet, that would give us enough time. Our decisions with the treasury officials indicate that they are proceeding along a more standardised route of the agreements and there will be some possibility of negations on the annexes. The actual agreements however are going to be pretty standardised. The agreements that have been signed and negotiations to date will likely evolve into the standard agreements. I don’t anticipate a lot of back and forth on the actual agreement language, just some of the technical discussions,” said Mr Pinder.
According to Director of Financial Services, Nicola Virgill Role, the ministry will complete its internal analysis on the appropriate approach for The Bahamas which is either a - Model 1 approach where the Government of The Bahamas, through the Ministry of Finance, serves as the conduit for the information from financial institutions before it is passed to the IRS; or the Model 2 approach which would require individual financial sector firms to enter into agreements to exchange the relevant information directly with the IRS. “The ministry has noted that there are advantages and disadvantages to either approach and our decision will be guided entirely by what is in the best interest of The Bahamas. The ministry plans to complete its internal reviews within the next two months or so and to present a recommendation to Cabinet, taking into consideration the views of all stakeholders including the Ministry of Finance which serves as the Competent Authority for Tax Information Exchange Matters, the Office of the Attorney General of The Bahamas, the Regulators and the private sector. After Cabinet approval, the Ministry of Financial Services would then be empowered to present a draft agreement to the United States so that negotiations may commence,” said Mrs Virgill.
FATCA, which was brought into law in March 2010, is a set of rules set out by the US Internal Revenue Service (IRS), designed specifically to limit tax evasion by US persons living abroad. Compliance with FATCA will include entering into a Foreign Financial Institution (FFI) agreement with the IRS, if the business concludes that it needs to become a participating FFI. Under FATCA, US taxpayers holding financial assets outside the US must report those assets to the Internal Revenue Service (IRS) or face penalties. FATCA will also require foreign financial institutions to report directly to the IRS certain information about financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest. FATCA’s demands are thus likely to impose extra demands on all Bahamas-based financial institutions in terms of resources and time needed to do the extra due diligence, resulting in them incurring increased costs.
Mr Pinder said that The Bahamas could ultimately garner a competitive advantage in the end depending on its response to FATCA and due to the fact that it is a sovereign nation. “I think depending on our response and because we are a sovereign nations we have the ability to have a advantage rather than a disadvantage. We see some of the British overseas territories being forced into certain decision they may not have independently chosen. We have the ability to independently takeout make decisions in the best interest of our industry. I think we have the best technical team in the region and certainly among our competitors. I think we will ultimately come out ahead of our competition and be more competitive in the industry,” Mr Pinder said.
Mr Pinder noted that he has already raised the cost of compliance issue with US authorities and the subject is expected to be highlighted during the upcoming regional Workshop on FATCA. “There are common elements within the region that would spur regional interest and solidarity and one of those is cost of implementation both from a government point of view depending on which model of the inter-governmental agreement you chose but also from a private sector pint of view. Everyone has that similar concerns. That really prompted me to propose that we look at certain areas of this which we can approach from a regional point of view to show as we advance in discussions with the US that there commonality in our concerns and that spurred the creation of the Cariforum regional task force on financial services. It ultimately spurred this proposal on the regional level to one, bring in regional governments to speak individually with the United States and ensure that we can have a multilateral discussions with the treasury and IRS where I’m sure the cost of implementation and assistance whether it be technical or otherwise will be discussed,” said Mr Pinder.