By Alison Lowe
Nassau Guardian Business Editor
NASSAU, Bahamas -- The Bahamas will now be treated as having "an agreement in effect" under the Foreign Account Tax Compliance Act (FATCA) by the United States' Treasury Department, after negotiations were concluded with the US Treasury and Cabinet approved the deal.
According to a release from the Ministry of Financial Services, The Bahamas and the US completed negotiations on a Model One Intergovernmental Agreement (IGA) on April 8.
Local financial institutions that may be affected have now been advised to register with the IRS Portal to obtain a Global Intermediary Identification Number (GIIN) by May 5, obtaining the status of Model One Participating Financial Institutions.
In a separate statement released by the Internal Revenue Service (IRS), the agency announced that jurisdictions that have reached "agreements in substance" with the US on the terms of IGAs under the FATCA can be treated as having agreements in effect until the end of 2014.
This treatment will be available to jurisdictions, such as The Bahamas, that have reached agreements in substance prior to July 1, 2014, and that consent to having the status of their agreements disclosed
The conclusion of the negotiations on the IGA represents a significant step towards limiting local institution's exposure to the potential commercial fallout from FATCA, which was enacted on March 18, 2010.
FATCA introduces a new reporting regime aimed at the disclosure of US persons with offshore accounts and investments, in an attempt to crack down on tax evasion, which the US estimates to cause a loss of $100 billion in tax revenue a year.
Under FATCA, the US government can impose a 30 percent penalty withholding tax on withholdable payments made to foreign financial institutions and other foreign entities that fail to comply with the disclosure requirements.
The tax is high enough that it effectively means exiting all US investments or reaching an agreement with the IRS on disclosure.
Governments have two options for complying with FATCA: they can either permit their Foreign Financial Institution (FFIs) to enter into agreements with the IRS, or they can themselves enter into IGAs with the U.S.
The Bahamas has chosen the latter option, with this requiring government-to-government, rather than financial institution to government, reporting.
In a release advising its members of the "anticipated" development with respect to The Bahamas’ conclusion of its negotiations on the Model One IGA and therefore its status as a jurisdiction with an "agreement in effect", Aliya Allen, chief executive officer and executive director of the Bahamas Financial Services Board, said the board will now keep its members apprised on ongoing developments and "next steps vis a vis FFI obligations."
Republished with permission of the Nassau Guardian