By NEIL HARTNELL
Tribune Business Editor
The Government’s decision on how to comply with the US Foreign Account Tax Compliance Act (FATCA) has allowed the Bahamian financial services industry to “breathe something of a sigh of relief”, a senior executive said yesterday.
Aliya Allen, the Bahamas Financial Services Board’s chief executive, told Tribune Business was now positioned to “fare very well” in the post-FATCA compliance and information sharing climate.
Speaking in the aftermath of the decision to reach a Model One Intergovernmental Agreement (IGA) with the US Treasury, Ms Allen said the move would ensure Bahamian financial institutions enjoyed continued access to the US market free from any withholding penalties.
“The main benefit of Model One is ease of administration, and particularly implementation,” she told Tribune Business. “Certainly, for the industry, it’s going to be much easier for them, and much more palatable for them, to deal directly with the Government and not have to come to an individual agreement with the US Treasury.
“For some institutions that may not have been a factor, but for some of the smaller IFAs [independent financial advisers] it might have been a huge undertaking.”
Ms Allen, who is also the BFSB’s executive director, said the financial services industry’s “majority view” was that the Model One IGA was “the appropriate route to take”.
The decision, she added, had provided the sector with “more clarity and caused the industry to breathe something of a sigh of relief”.
And “being able to announce we have a defined position on FATCA means a great deal to industry, as it can advise head offices and have some certainty in reporting mechanisms and systems it’s putting in place.
“It’s now up to the Government and industry to really continue the process of education and ensure we’re all prepared for FATCA’s implementation,” Ms Allen added.
“I think the Bahamas will fare very well in the new FATCA environment.”
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.
However, Lawrence Lewis, a partner at Deloitte & Touche (Bahamas), yesterday described the mechanism the Bahamas will use to comply with the US Foreign Account Compliance Act (FATCA) as a “significant concern” and “the big elephant in the room”.
He said that while the financial services sector 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 the sector and government.
Mr Lewis said: “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.”