By NEIL HARTNELL
Tribune Business Editor
A leading accountant yesterday described the mechanism the Bahamas will use to comply with the US Foreign Account Compliance Act (FATCA) as “significant concern” and “the big elephant in the room”.
Lawrence Lewis, a partner at Deloitte & Touche (Bahamas), said that while the financial services had largely already known the Bahamas would choose a Model One Intergovernmental Agreement (IGA) to meet US demands, the country now had to focus on putting the necessary infrastructure in place.
The Model One IGA will require Bahamian financial services providers to supply all necessary information on US taxpayer clients to the Government, probably the Ministry of Finance, which will then send it to the Internal Revenue Service (IRS).
While this is the financial services industry’s preferred compliance route, it will inevitably raise questions of information security, plus create a new level of cost and bureaucracy for sector and government.
Asked how confident the industry was about this process, Mr Lewis replied: “That’s a good question. I don’t know if I can say how confident the industry is.
“That’s an area of significant concern. I imagine the industry will likely seek to have some kind of influence, I don’t want to say involvement, but influence in ensuring the compliance infrastructure is in place. That’s obviously the big elephant in the room.”
Mr Lewis added: “We’ve got to now put up some level of new infrastructure, whether that’s people, technology, some form of new agency, or unit sitting within an organisation.
“We’ve got to put some level of support in place. How do we do that in the most cost effective manner, but accomplish the things we need? Where is the Government going to find the money to do it? These are the big questions that will next have to be grappled with from the Government standpoint.”
Mr Lewis said the Bahamian financial services industry had known “with some level of certainty” for the last three months that the Government was likely to go the Model One IGA route on FATCA compliance.
“In one sense it’s confirming what we already know, but it does provide some level of impetus to organisations that have started down the path [of FATCA compliance], as they can now see the end point and work towards that,” he told Tribune Business.
Those that had not moved to ready for FATCA, Mr Lewis added, would receive “a kick in the pants” from the Government’s decision that would get them moving.
The Deloitte & Touche (Bahamas) accountant said the main benefits from a Model One IGA would be that Bahamas-based financial institutions avoid “any direct interaction with the IRS”.
“There’s a general feeling that the less interaction you need to have with regulatory authority, or tax authority, outside the Bahamas, is much better,” Mr Lewis explained.
“People just don’t want to deal with the IRS. It’s far better to deal with the Bahamian government. The flip side is that the Bahamas government now has to prepare the infrastructure to acquire and maintain the confidentiality of information provided to the IRS.”
FATCA, which was brought into law in March 2010, is a set of rules from the US Internal Revenue Service (IRS) designed specifically to limit tax evasion by US persons living abroad.
Compliance could have included 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 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.