Fatca Regulations ‘Push’ Bahamas In Gov’T Deal Heading


Tribune Business Editor


The Bahamas will likely see “a bit of a push” to comply with the US Foreign Account Tax Compliance Act (FATCA) through an Intergovernmental Agreement (IGA), as this seems to impose less onerous reporting requirements on its core wealth management business.

Aliya Allen, the Bahamas Financial Services Board’s (BFSB) chief executive, told Tribune Business that the final FATCA regulations - released at the end of last week - did “change the landscape somewhat” when it came to how family trusts and private investment corporations (PICs) would be treated.

She explained that the FATCA compliance requirements for these products, both of which feature prominently in the Bahamian financial services industry, appeared to be much less if they were domiciled in jurisdictions that had signed an IGA with the US Treasury/Internal Revenue Service (IRS).

Emphasising that she was not trying to “preempt” any decision ultimately taken by the Government and Bahamian financial services industry as a whole, Ms Allen said anything that reduced FATCA’s regulatory burden had to be “seriously looked at”.

“Industry is in the mode of evaluating the final regulations, and whether they change the landscape or don’ provide any new information,” Ms Allen, who is also the BFSB’s executive director, told Tribune Business,.

“It does seem they do change the landscape somewhat when it comes to family trusts and private investment corporations (PIC), in that the new regulations seem to clarify whether a family trust or PIC is going to be a foreign financial institution (FFI) or non-financial foreign entity (NFFE).”

The difference between the latter two definitions, at least when it comes to the regulatory/compliance burden that FATCA will impose, is significant.

If they are deemed to be FFIs, all Bahamas-domiciled family trusts and PICs will have to reach their own agreements with the IRS, and identify and report any US accounts/beneficial ownership to the tax authority.

That would create a bureaucratic, regulatory nightmare for both clients and Bahamian financial services provider.

But, if family trusts and PICs are defined as NFFEs, they only have to certify they have no more than 10 per cent US beneficial ownership interest and report the identities of any Americans to the IRS.

On which definition applies, Ms Allen said: “That seems to depend on whether the family trust or PIC is organised in an IGA jurisdiction, which does make the evaluation for the Bahamas in whether or not to do an IGA a different evaluation altogether.

“Obviously, from the Bahamas’ perspective, with our history of being a leader in private wealth management, we’re going to want to make sure that business is facilitated and not hampered.

“I imagine there will be a bit of a push to swiftly examine or conclude an IGA.”

Noting that the Government was still putting together its FATCA Task Force, which will include representatives of the BFSB and wider financial services industry, Ms Allen said the sector was now evaluating what the US law - and its regulations - meant for them.

“I would not want to preempt what the Task Force is going to conclude, but if the IGA is going to facilitate a streamlined approach for our trust business, in terms of what reporting they have to do if they are classified as NFFEs, it’s something we have to seriously look at going forward,” the BFSB chief executive told Tribune Business.

Rather than individual financial services providers entering into foreign financial institution (FFI) agreements to pass information on US taxpayer clients to the IRS themselves, the IGA offers an alternative where these details are passed to a ‘home country’ tax authority - which then exchanges the information with Washington under an existing Tax Information Exchange Agreement (TIEA).

The IGA route has been promoted as simplifying the process, reducing the time and expense individual financial services providers would incur in complying with FATCA, and eliminating any conflict this might cause institutions with domestic confidentiality laws.

An analysis of the final FATCA regulations by the KPMG accounting firm, though, noted that there was an “anomaly” between how they and the IGAs treated family trusts and PICs.

IGAs treated these products as NFFEs, and thus more favourably, while the regulations classified them as foreign financial institutions (FFIs).

This, KPMG said, ran counter to the broad IRS/US Treasury Department objectives of “harmonising” the IGAs and FATCA regulations.

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.

Under FATCA, US taxpayers holding financial assets outside the US must report those assets to the 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.

Ms Allen, noting that several FATCA deadlines had been missed, said it was unlikely that the implementation timescale would be pushed back much more.

“Despite the fact that deadlines seem to be getting pushed back again and again, we’re quite sure that not many more will get pushed back, and evaluations have to take place in a swift manner” the BFSB chief executive told Tribune Business.

“It’s a good thing that we’ve been detailed in industry evaluation, and we can see what is in the regulations and what is in the IGAs. I don’t expect it will take very long to start moving forward.”


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