Financial Industry Fears Fatca Start With No Legislation

The Bahamian financial industry is concerned it will have to start reporting information for the US Foreign Account Tax Compliance Act (FATCA) without the necessary legislation being in place, Tribune Business can reveal.

Lawrence Lewis, a Deloitte & Touche (Bahamas) partner and accountant, confirmed to Tribune Business that there was “a level of concern” in the sector that it will have to start FATCA registration and filing without a supporting legal framework for this activity.

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.

These deadlines are confirmed by the Government’s own FATCA website, which reads: “There will be a phased roll-out of the reporting system to run between July 1, 2015, and July 15, 2015.
“The deadline to register on the portal is July 31, 2015. The reporting deadline for financial institutions to submit their final submission is Monday, 17 August, 2015. Further details on this will be provided at a later date.”

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 Lewis yesterday agreed that the situation was creating uncertainty both inside and outside the Bahamas, creating an unfavourable environment for financial services industry operations.

He added that Deloitte & Touche’s Bahamas office had been fielding calls from both Bahamas-based financial clients and overseas institutions, the latter of whom included this nation in their ‘group’ FATCA reporting.

These clients all wanted to know how the Bahamas’ FATCA compliance and reporting processes “are going to work”, Mr Lewis said.

And he suggested that the continuing uncertainty, and lack of clarity, could begin to negatively impact the Bahamas’ jurisdictional reputation.

“There’s definitely a level of concern around,” Mr Lewis told Tribune Business. “No organisation, no institution, wants to operate from an environment where there isn’t total clarity around how things are intended to operate and be handled.

“We’ve been getting calls from local clients and, where group filing is involved, we’ve been fielding calls from abroad as to how this is going to work. So it is generating some level of concern.

“I suspect that just from a jurisdictional reputation standpoint, they’ll actually want to get it past before the filing.”

The Deloitte & Touche partner, though, told Tribune Business that the Bahamas would ultimately be able to withstand these issues due to the advanced FATCA preparations made by many institutions.

“I think the only saving grace around it is because we have been reasonably well engaged as a jurisdiction on this issue, notwithstanding that the Bill and regulations aren’t finalised,” Mr Lewis said.

“There’s still sufficient industry knowledge out there that sets out a development path around it.”

Several other Bahamian financial services executives have expressed fears to Tribune Business, speaking on condition of anonymity, that the FATCA reporting/filing deadlines are almost upon the industry without the legislation being in effect.

This means that there is no legal basis to support the exchange of US client information, which institutions must first pass 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.

Mr Lewis suggested the Bill would be passed before the information filing deadlines, but warned Bahamas-based institutions not to wait until this happened.

“You have to prepare as though what has been laid out to-date is the final version, and prepare against that backdrop,” he added.

“I think we’re reasonably well-placed. I was talking to somebody today around the number of accounts they have ultimately identified [as being US-owned], and they have to report very small numbers, generally speaking.

“People have worked through the process, notwithstanding there are a few things they have to fine tune and work out,” Mr Lewis added.

“We’re not talking about thousands or hundreds of accounts. We have tens of accounts where we have to work out of these are US persons. They’ve been able to whittle down the numbers to manageable levels.”

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.”

FATCA is merely the first of many automatic tax information exchange agreements the Bahamas must face, with OECD member countries – especially the Europeans – foisting their own version of FATCA on the Bahamas and other international financial centres from 2017-2018.

“As difficult as it’s been to get to this point, the real challenge for us is going to come in future years when the OECD and its common reporting standards kick in,” Mr Lewis told Tribune Business.

Describing it as “the global version of FATCA”, he added: “We’ll have greater efforts to make on that one because we have got less US clients and more Europeans.”