The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Hotel and Tourism Association (BHTA) is giving “the utmost priority” to resolving Washington’s requirements that US credit card

companies ‘withhold’ 28 per cent of all transactions involving non-registered companies, fearing it could cause “huge cash flow problems”. Tribune Business sources said one BHTA member had seen $90,000 withheld on

one credit card transaction despite registering with the Internal Revenue Service (IRS) as a foreign company that should be exempt from the ‘28 per cent withholding’ strictures.

Providing evidence that the extraterritorial application of US law, and Know Your Customer (KYC) and ‘withholding’ rules, have spread beyond the financial services sector into the general business world, the BHTA yesterday sent out an advisory warning its members about the implications

of the Housing and Economic Recovery Act (HERA) 2008.

This legislation requires US-based credit card companies to report the gross sums involved in their merchant clients’ transactions to the Internal Revenue Service (IRS). It is designed to prevent US companies under-reporting their sales, and thus avoiding due taxes. Under the law, which came into effect on January 1, 2013, US credit card companies are required to ‘withhold’ a sum equivalent to 28 per cent of the transaction’s size if the merchant involved has provided no Taxpayer Identification Number (TIN) or there are discrepancies in the paperwork.

While foreign companies, such as those domiciled in the Bahamas, are exempt from these requirements, they have to file and register with the IRS to prove this or the withholding will kick in.

Only American Express currently appears to have implemented the HERA requirement, but Tribune Business was told it had already ‘withheld’ funds from one transaction initiated by a Bahamian company that had registered its foreign status with the IRS.

Advice sent out over the weekend by the BHTA to its membership said many Bahamian businesses were not aware of the HERA Act’s requirements and withholding penalties.

It added that several hotels had been subject to the 28 per cent withholding requirement despite filing the necessary paperwork with the IRS to be registered as a foreign company.

And, while American Express was the only credit card firm implementing this to-date, all its US-based counterparts have to comply. Robert Sands, Baha Mar’s senior vice-president of governmental and external affairs, told Tribune Business yesterday that the issue had been brought to the BHTA’s attention last week.

“There’s still some work to be done on this matter,” he said. “We are aware that one of our members said there was some withholding of a remittance from a particular credit card company. This has come as a surprise, as it could have been avoided if the necessary IRS form was completed, which that member had complied with.”

Noting that American Express appeared to be the only credit card company implementing the ‘withholding’ rule, Mr Sands said both the Ministry of Foreign Affairs and Ministry of Tourism had been informed of the issue. “It is a concerning issue,” he told Tribune Business. “We need to obtain more information and address it very quickly..... I don’t think we’re at the point at the moment to cause any alarm, but it is a matter of great concern.

“This is a very recent issue brought to our attention, but it is being given the utmost priority to be resolved. I am cautiously optimistic some solution, process will be put in place to mitigate against companies being put out of pocket for significant sums of reimbursement.”

Mr Sands added that the BHTA would exploit the presence of the Caribbean Hotel and Tourism Association’s (CHTA) Caribbean Marketplace conference at Atlantis this week to join a lobbying effort by the latter, which represents the region’s hotel sector, on the matter.

Apart from the private sector, a meeting of Caribbean tourism ministers is also being held this week. They, too, will address the matter.

One source told Tribune Business: “In one case the merchant had filed as required and they still withheld $90,000. Apparently, the ‘reimbursement’ process must go through the US and will take a long time, and the business will incur legal and other expenses to do this.

“We don’t know the details yet, but it appears the credit card companies are not sufficiently advising companies. It presents a huge cash flow problem, particularly for our small and mid-sized businesses.”