Monday, January 23, 2017
Wednesday, February 1, 2017
The Bahamas is on track to meet an Organization of Economic Co-operation and Development (OECD) imposed 2018 deadline on information sharing among international tax authorities, representatives of the financial services industry heard January 20.
The industry briefing in Nassau came 19 days after the Automatic Exchange of Financial Account Information Act 2016 came into force.
The new legislation enables The Bahamas to comply with an international framework, set by the OECD.
The goal is to implement a common reporting standard (CRS) as it relates to the automatic exchange of individuals’ financial information for tax purposes.
“The aim of the CRS is to ensure all taxpayers pay their fair share of tax by providing tax authorities with information on individuals with offshore and other internationally held accounts, regardless of where their financial accounts are located,” said attorney general Allyson Maynard Gibson addressing the briefing.
“Those that do not comply with their tax obligations undermine the integrity of the tax system. The CRS will improve the integrity of the tax system by engendering confidence that taxes are not being evaded.”
An established offshore financial centre, there is a critical need for The Bahamas to promote a regime that fosters high standards of governance and integrity at all times, she added.
“In doing so, we help to build and promote the confidence of the international community in our jurisdiction, although this does not guarantee this consideration, as we are well aware, the goal posts are continually moved, making it virtually unattainable,” said Financial Services Minister Hope Strachan.
The second pillar of The Bahamian economy, second only to tourism, the financial services sector accounts for 17 per cent of GDP. It employs over 20,000 (or 13 per cent of the population) directly and indirectly.
Moreover, the industry generates over $200 million in substantial government revenues, and accounts for approximately 19 per cent of the country’s tax base. Thus, the government is racing to implement CRS by the September 2018 deadline.
“We are on schedule to meet this obligation and we continue to work diligently,” Strachan told a packed meeting, attended by stakeholders from across the industry.
Compliance is being made possible through the collaborative work efforts of the Attorney General’s Office, Ministry of Financial Services, Ministry of Finance, Bahamas Financial Services Board, international legal counsel and other members of the financial services industry
“A country’s implementation of CRS from a legal perspective involves three principal steps,” explained Maynard Gibson. “Translating the CRS financial account information reporting and due diligence standards into detailed rules and procedures under domestic law, selecting the legal basis for exchanging with other countries the financial account information received in the reporting, and entering into agreements with counterpart competent authorities in other countries at the administrative level to activate and provide the mechanics for the automatic exchange, including what, how, and when information is to be exchanged.”
CRS provides for two alternative legal bases, the multilateral approach (which would allow for the exchange of information with over 100 countries all at once) and the bilateral approach (where exchange agreements are negotiated on a country to country basis). The Bahamas has chosen the latter.
A jurisdiction that intends to comply with this new common reporting standard must also develop detailed rules and procedures to require its own financial institutions to report information to their domestic tax authority consistent with CRS.
“While the external environment is not within our control, what is in our control, are the policies,” said Strachan. Passing the Automatic Exchange of Financial Account Information Act was the first step, regulations comes next, she addedf.
At the briefing, Maynard Gibson reported that regulations will be released for consultation before the end of this month.
Still, compliance hinges on the Competent Authority, the body responsible for obtaining the relevant information from local financial institutions and executing the actual exchange of tax information.
“For the Competent Authority to transmit data to the reportable jurisdictions, the Competent Authority’s Office must, first of all, receive the data,” said Minister of State for Finance Michael Halkitis, who has oversight for that unit.
“Adequate enforcement mechanisms, such as fines and penalties, will be implemented to deter and penalize reporting financial institutions and, if appropriate, account holders in respect of non-compliance with the Act and the Common Reporting Standard.”
Halkitis acknowledged the new global standard models the United States’ Foreign Account Taxpayer Compliance Act (FATCA), which led the way on a global push for cross-border co-operation in the collection of taxes. For the first time, FATCA placed the burden on foreign financial institutions (FFI) and international tax authorities to report US financial asset holders, beginning in 2014.
“Since the new global standard builds very closely on FATCA, as a result the change required by the CRS are incremental rather than fundamental,” he said.
Watch a ZNS news segment on CRS here: