By NEIL HARTNELL
Tribune Business Editor
The Bahamas would be “at a competitive disadvantage” if it chose not to comply with the US Foreign Account Tax Compliance Act (FATCA) via an Intergovernmental Agreement (IGA), the Minister of Financial Services believes.
Ryan Pinder told Tribune Business he “always thought it would be difficult” for the Bahamas not to go the IGA route in complying with the US Treasury/Internal Revenue Service (IRS) demands, given that it would immediately hand a competitive advantage to rival international financial centres (IFCs) that did.
He explained that Washington’s delay in finalising both the IGA models, and FATCA regulations, had forced the Bahamas to hold off making any final decision on the compliance route to pursue.
But, now these had been released, the Government and financial services industry were reviewing the finer details and technical aspects to determine which IGA model best suited this nation.
“I think it puts the Bahamas at a competitive disadvantage in the global marketplace not to have an IGA,” Mr Pinder told Tribune Business. “It’s just the model we pursue. We want to review it from a technical point of view before we take a definitive position.
“I’ve always thought that it would be difficult for the jurisdiction not to conclude an IGA, just from a competitive point of view.”
Mr Pinder’s comments shed new light on the direction that the Government, and financial services industry, are likely to take in meeting FATCA’s onerous Know Your Customer (KYC) requirements when it comes to bank accounts and a host of corporate/investment vehicles that have even a trace of US beneficial ownership.
The Minister’s position is also very much in line with that expressed by Aliya Allen, the Bahamas Financial Services Board’s (BFSB) chief executive and executive director, who last week said the
Bahamas will likely see “a bit of a push” to comply with FATCA through an IGA, as this seems to impose less onerous reporting requirements on its core wealth management business.
This was because FATCA compliance requirements for family trusts and private investment corporations (PICs), 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).
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.
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.
Mr Pinder, meanwhile, told Tribune Business that his proposed FATCA Task Force, which will determine the best way forward for the Bahamas, will be formed imminently. The framework and terms of reference under which it will work are being decided, along with the financial services executives and government officials that will sit on it.
“We have advanced considerably this last quarter as it relates to FATCA,” the Minister said.