Is Bermuda ready for FATCA?
The following commentary, compiled by the Institute for Risk Management Bermuda Group, examines the implications for the Island of the Foreign Account Tax Compliance Act (FATCA) legislation enacted by the United States.
Back in June 2012 the Institute of Risk Management (IRM), Bermuda Regional Group hosted a forward looking forum of industry experts and stakeholders from the local community. The forum discussed what the upcoming FATCA regulations were at the time, how they might affect Bermuda and what advice could be given to the community.
Since that initial discussion, we have seen some significant progress made in Bermuda and wholesale changes in the FATCA landscape internationally. Locally, Bermuda is making the arduous journey towards FATCA compliance under the final regulations.
Though implementation has been delayed from 1 January 2014 to 1 July 2014, the world has just received the final FATCA FFI Agreement, but still awaits final forms (and their instructions) that customers are to sign and also further changes to the planned regulations. Bermuda has now signed an Inter-Governmental Agreement (IGA) with the US. Internationally, outside of US FATCA, Bermuda has now signed an IGA with the UK for UK FATCA and has committed to a wider exchange of information process with the UK, Germany, France, Italy and Spain.
Now we have the OECD Exchange of Information Model Agreement that Bermuda will most likely sign up to, that will potentially have Bermuda signing over 50 IGA type agreements with potentially different FATCA requirements.
This lack of certainty and the delays that have occurred, including the US Government shutdown in the latter part of last year, we believe have caused many companies to slow down their FATCA preparations and in some cases put them on the back burner which is far from ideal given the timeline in place. However, some of the larger financial institutions who have been planning for the introduction of FATCA reporting for some years are continuing along with the timetable originally prepared.
The delay in the opening of the IRS Portal along with the welcome shift in the timeline published by the IRS back in July of this year has contributed to the uncertainty of timing. Despite the opening of the IRS Portal in August last year and until now the absence of an FFI Agreement to review many financial institutions have delayed starting the registration process.
Looking back to the original roundtable discussion that the IRM Bermuda Group hosted in June 2012, there have been fewer industry specific forums available for industry stakeholders to attend but more general forums covering high level requirements. This may be attributable to the issues previously mentioned and/or a sense of denial and a hope that FATCA will disappear. The US FATCA final regulations are nearly 500 pages long and difficult to read especially for those who have not had any prior US tax legislation experience. Information on various topics has not been as in-depth as some in the industry would like. The UK has produced extensive FATCA Guidance Notes to assist its financial institutions and it is believed that the Bermuda Government will expect Bermuda FFIs to rely on these Notes in order to assist compliance.
So where does Bermuda stand in its readiness, for not only US FATCA compliance but also UK FATCA and “OECD FATCA” compliance and reporting in 2015?
How worried should we be? Is the accidental FATCA non-compliance risk a real one that Bermuda FFIs are right to be concerned about or are we succumbing to the “Boogie-man” syndrome?
FFIs will also need to be on the alert for situations where a US person or entity might be trying to create more complex arrangements to “hide” behind. While there may be legitimate reasons for being structured in a particular way, FFIs must be careful and perform due diligence to ensure that these reasons are valid and that they are not inadvertently being “dragged in” to a potential tax evasion situation. What will be the strategy of Bermuda FFIs to address this?
Following the Edward Snowden/NSA spying scandal and the related discussions about the right to privacy and civil liberties, what are the feelings regarding the amount of financial information the IRS will have at its disposal? Of course we’re not saying that the NSA would hack the IRS, but will that information be shared or made available to law enforcement agencies to help their investigations?
Will this be a welcome opportunity for better cooperation between agencies in the fight against frauds, money laundering and terrorist financing, to name but a few, or is this another nail in the coffin for the right to privacy and confidentiality?
Is the belief that there are Bermudians that are unaware that they are also US persons and have never filed US tax returns or FBAR forms still a concern?
Have Bermudians that are US persons started to realise the impact FATCA may have on them? Has there been, or will there still be, an increase in Bermudians that are US persons renouncing US citizenship as there has been in some other jurisdictions?
It will be interesting to see how these questions will be answered as FATCA is implemented.
Credit: Royal Gazette