The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman yesterday warned that new US laws implementing a potential ‘28 per cent withholding tax’ on credit card transactions could have a “devastating impact” on the private sector, as one business told Tribune Business it had seen some $20,000 in payments held back.

Chester Cooper said that if implemented and enforced across all US-based credit card processing companies, the US Housing and Economic Recovery Act’s (HERA) requirements could “cripple” the cash flows of many Bahamian companies that had yet to meet Internal Revenue Service (IRS) requirements.

“If this is implemented and enforced, the impact can be devastating on Bahamian business, especially given our tourism-based economy,” Mr Cooper told Tribune Business.

“We are sending a notice to our members and urging them to make the required filing of the W8 form. We urge our members to take it seriously.

“Obviously, a 28 per cent withholding tax on a transaction will wipe out the profit margin on that transaction for most businesses, crippling their cash flows, and could be a general setback to normal operations,” he added.

“This is regrettable, but obviously a consequence of another large country to protect its tax base by levying additional compliance requirements on businesses.”

Mr Cooper’s comments came as one Bahamian-owned business contacted Tribune Business to report that it had fallen victim to the ‘credit card withholding’.

Requesting anonymity, the businessman said some $20,000 worth of payments due to it from American Express credit card transactions had been withheld.

“No one ever told us about this until now,” the businessman said. “It’s mindboggling if they’re going to be withholding that percentage of money.

“It puts you in a position where you can’t even profit, because it’s 30 per cent of the charge amount that they’re withholding.”

American Express appears to be the only credit card company to have implemented the HERA Act requirements to-date, but it has the potential to hugely disrupt incoming and outgoing payments from/to Bahamian firms using its cards.

The legislation requires US-based credit card companies to report the gross sums involved in their merchant clients’ transactions to the 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, 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.

Winston Rolle, the BCCEC’s chief executive, yesterday said he was “trying to get a clear handle” on the issue and obtain “an understanding of the real impact”.

While he was still contacting private sector firms to get their input, he added of the 28 per cent ‘withholding’: “The net effect on cash flow from something like that could be tremendous. That’s scary.”

Advice sent out over the weekend by the Bahamas Hotel and Tourism Association (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, one BHTA member failing to receive $90,000.

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.”