By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
The Opposition yesterday said it was “very, very concerned” that the Bahamas had yet to pass legislation giving effect to its tax information exchange commitments with the US, and warned this could have “serious repercussions” if not addressed soon.
Hubert Chipman, the St Anne’s MP, said further delay in passing the Bill that will give legal status to the Bahamas’ Foreign Account Tax Compliance Act (FATCA) agreement with the US would exacerbate the “stress” already being experienced by the financial services industry.
“We are very, very concerned,” Mr Chipman told Tribune Business, describing FATCA as “a fact of life” and something that “has to come” whether the Bahamas and its financial services industry like it or not.
“Reputation is everything, particularly from a financial sector point of view,” Mr Chipman added. “As you know, the financial sector is going through some tremendous changes. We are losing business. There is a concern with the financial services sector right now.
“It is under stress, and we would want to live up to all the commitments made with the US. We don’t want the US to come down on the Government, or the Bahamas for that matter, period.
“At the end of the day, it [FATCA compliance] has to happen, and the current minister has been very quiet on it.”
Mr Chipman, former country managing partner for the Ernst & Young (Bahamas) accounting firm, said he thought Ryan Pinder, the immediate past minister of financial services, had been pushing for the FATCA Bill to be brought to Parliament.
He added, though, that it was unclear how much progress had been made on the issue since Mr Pinder stood down from his ministerial post, and the Cabinet, to be replaced by Hope Strachan.
“It’s very important, and I think Ryan would agree with that,” Mr Chipman said. “My wife is an American, so I know from her point of view what she has been trying to do to make that [FATCA compliance] happen.”
Tribune Business revealed earlier this week the Bahamian financial industry’s concerns that it will have to start complying with FATCA’s automatic information exchange provisions without the enabling laws - which will support and facilitate this process - in place.
This is because the Bahamas-US FATCA Agreement Bill, which will codify the agreement struck between the two nations over how this country’s financial institutions will report information on their US clients, has yet to be debated and passed by Parliament.
Nor have the FATCA ‘guidance notes’, which give Bahamas-based institutions compliance advice on how to deal with the reporting regime’s details, been finalised.
Yet, according to the Government’s own FATCA reporting website, testing of the ‘portal’ through which Bahamas-based institutions must submit all necessary US client information is due to start on July 1 - a date just over two weeks away.
Financial institutions must register with the portal by July 31, and complete their first filings - for the tax year to end-December 2014 - by Monday, August 17.
Given the equally pressing need to pass the 2015-2016 Budget, it appears unlikely that the House of Assembly - let alone the Senate - will get around to debating, and passing, the FATCA agreement Bill before July 1.
While there is still enough time to finalise, and pass, the legislation prior to the August 17 ‘actual’ reporting deadline, and possibly before the July 31 registration cut-off, it appears the Bahamas will again be hard-pressed to meet pre-agreed deadlines.
Mr Chipman’s concerns were yesterday backed by his colleague and Opposition deputy, K P Turnquest, who said he was under the impression that FATCA was “well in hand” under Mr Pinder.
“We knew these deadlines were coming, and to the extent we’re unable to move on that and pass the necessary legislation is a concern as it has the potential to affect the jurisdiction and institutions’ ability to engage in international transfers,” Mr Turnquest told Tribune Business.
With the deadline for Bahamian institutions to submit US taxpayer-related information for 2014 just two months away, Mr Turnquest expressed concern that their clients might be exposed to the 30 per cent ‘withholding’ penalty on all US source income if this nation failed to pass the necessary legislation before August 17.
Bahamas-based financial institutions might also be put in a compromising position with their clients if they go ahead and supply the information without there being a legal basis in place to support this action.
“This has significant penalty clauses,” Mr Turnquest said of FATCA, “so to the extent that any delay would result in automatic withholding for Bahamas-based clients, that is of significant concern.
“I think we’d be very concerned about the reputation as well as the competitiveness of the jurisdiction. Offshore finance is becoming a very competitive and regulated business, and anything that affects the competitiveness and efficiency of the jurisdiction can have major repercussions and is a serious concern.”
Mr Turnquest said the Bahamas should display “much more efficiency” in meeting these deadlines, given that it has a Ministry - Financial Services - dedicated to dealing with such issues.
Institutions must first pass US client information to the Ministry of Finance under the terms of the Intergovernmental Agreement (IGA) struck between the Bahamas and the US.
That information will then be forwarded from the Ministry of Finance to the US Treasury and Internal Revenue Service (IRS), as required by the IGA.
The Bahamas-US FATCA Agreement Bill is thus intended to convert the IGA into statute. If it is not passed into law, the IGA will have no legal effect, thus placing the Bahamas in potential danger of failing to fulfill its obligations to the US tax authorities.
Such a scenario is unlikely to happen, given the Bahamian financial industry’s dependence on US markets and correspondent relationships with US institutions.
The draft Bahamas-US FATCA Agreement Bill and accompanying guidance notes were released in early May 2015 for industry consultation and feedback.
The Bill’s ‘objects and reasons’ states, precisely and bluntly, why the Bahamas must comply with FATCA to ensure the survival of its financial services industry.
“The United States has one of the largest securities and investment markets, and a large network of correspondent banks,” the Bill says.
“It is well nigh impossible today to do business without coming into contact with its financial system.”
Comments
Use the comment form below to begin a discussion about this content.
Sign in to comment
Or login with:
OpenID