The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas has secured “sponsored exemptions” from the US Foreign Account Tax Compliance Act (FATCA) for its key financial services products, having chosen to comply via a government-government deal.

Ryan Pinder, minister of financial services, told Tribune Business that the Government had negotiated with the Internal Revenue Service (IRS) to exempt Bahamian trusts, private trust companies and “feeder funds” from having to register with it individually under FATCA.

Describing this as “a great success” in protecting large swathes of the Bahamian financial services industry from an onerous FATCA compliance burden, Mr Pinder said the only decision left was which Intergovernmental agreement (IGA) the Bahamas would choose to sign.

Confirming that the Bahamas would sign either the IGA model 1 or model 2 agreement, Mr Pinder said the choice would be made after a final consultation with top industry executives on May 27.

“We have made it a goal to have the recommendation into Cabinet on the IGA in by June 1,” Mr Pinder said.

“We’re going to go the IGA route. That’s definitive position to protect the industry - model 1 or model 2, whichever the industry supports as most practical.”

Under the IGA model 1, all Bahamas-based financial institutions would supply the information sought by the IRS to a central government agency, which would then pass it on to the US tax collection agency. The model 2 IGA, though, would require financial institutions to file individually with the IRS.

Still, Mr Pinder said the Bahamas was able to use last month’s FATCA symposium in Nassau, and the IRS presence there, to negotiate an agreement best-suited to its financial services industry’s needs.

“At that time, trusts which have a corporate trustee, which are most of the trusts in the Bahamas”, were being recognised as Foreign Financial Institutions (FFIs), Mr Pinder said.

This would have required Bahamian trusts to register individually with the IRS, regardless of whether there was a US interest in the trust or nor, the Minister explained.

Apart from creating a potentially costly and bureaucratic compliance process, such a requirement would also have compromised the confidentiality sought by many non-US high net worth families.

“We were, through negotiations with the IRS, able to obtain the sponsored exemption for trusts,” Mr Pinder said.

This means that the trust company overseeing the trust will be responsible for reporting any identify and report any US beneficial ownership, or asserting there are no US interests, to the IRS. The registration requirement for individual trusts is also removed.

“This was a very important one for the jurisdiction of the Bahamas, and we were able to secure that sponsored exemption in the IGA for FATCA,” Mr Pinder told Tribune Business.

“We were also able to achieve the sponsored exemption for funds in a feeder fund structure. Those funds that do not have a US interest will be allowed to be sponsored by the fund manager, and will not have to register individually.”

FATCA is designed to limit tax evasion by US persons living abroad. US taxpayers holding financial assets outside the US must report those assets to the IRS or face penalties.

Meanwhile, Mr Pinder said he aimed to have the Bahamas recognised as an International Arbitration Centre “within four years” - before the next general election in 2017.

He disclosed that some “tweaks” to the enabling legislation, passed in 2009-2010, were likely to make it “more user friendly” for those in regions such as Latin America.

The nine-member Arbitration Council, the body that will oversee the Bahamas’ efforts to establish itself as an alternative dispute resolution hub, will formally be launched “next month”.

Noting that the Bahamas’ arbitration focus will be on financial services, maritime and trade, Mr Pinder said this nation’s Trust Act required all disputes to be referred to alternative dispute resolution first - rather than the courts.

Urging Bahamian businesses in the ‘domestic economy’ to employ arbitration as a first means of dispute resolution, Mr Pinder said it was more efficient than the commercial courts, and permitted the use of experts familiar with the business issues involved.

“My goal is to have us commercially viable and known as an international arbitration centre within four years,” Mr Pinder said.