Ladies & Gentlemen,
I am pleased to advise that that the government of The Bahamas successfully enacted the Automatic Exchange of Financial Account Information Act 2016 (“Act”) to implement the Common Reporting Standard for the automatic exchange of financial account information in December 2016. This Act provides for the implementation of the Common Reporting Standard (“CRS”) approved by the Organization for Economic Cooperation and Development (“OECD”) in 2014 for the automatic exchange of financial information in tax matters.
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 and a deep level of commitment from all involved, we were able to do this in a relatively short period of time. The government of The Bahamas understands the importance of The Bahamas being able to meet the implementation deadline of 2018 to which it has committed.
The Common Reporting Standard is an international framework developed by the Organization for Economic Co-operation and Development (OECD), working with non-OECD G20 countries, to tackle and deter cross-border tax evasion. This continues the global trend towards greater reporting and transparency in financial information that began with the introduction of the US Foreign Account Tax Compliance Act (“FATCA”).
A country’s implementation of CRS from a legal perspective involves three principal steps:
1. Translating the CRS financial account information reporting and due diligence standards into detailed rules and procedures under domestic law,
2. Selecting the legal basis for exchanging with other countries the financial account information received in the reporting, and
3. 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.
The CRS contains the reporting and due diligence standards that underpin the automatic exchange of financial account information. Although it is an international standard, a jurisdiction that intends to implement the Standard must develop and put into place detailed rules and procedures to require its financial institutions to report information to their domestic tax authority consistent with the scope of reporting set out in the CRS and the due diligence procedures contained therein. The Act and the regulations to be made thereunder will fulfill this first step in the implementation of the CRS. The regulations, I am happy to report, have been drafted and will be released for consultation before the end of this month. The second principal is premised on the fact that once financial institutions have collected and reported the information to their domestic tax authority, there must be a legal basis to authorize the automatic exchange of that information with the other countries that are the jurisdiction’s automatic exchange partners. The CRS as many of you are well aware, provides for two alternative legal bases: the multilateral approach and the bilateral approach. The multilateral approach is known as the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (“Convention”). Signing on to the Convention would provide the legal basis for the automatic exchange of information on a multilateral basis with the other signatories to the Convention, which now numbers over 100 countries. Under the bilateral approach, the legal basis for automatic exchange is found in (i) an income tax treaty with another country containing the standard OECD Model, or (ii) Tax Information Exchange Agreements (TIEAs) that provide for automatic exchange of information.
At this time, The Bahamas has chosen not to be a signatory to the Convention and instead has adopted the bilateral approach to implementation of the CRS. The bilateral approach requires The Bahamas to enter into (i) a bilateral tax treaty or a TIEA and (ii) a competent authority agreement with each jurisdiction. Thus, the bilateral approach taken by The Bahamas provides it with an opportunity to negotiate with jurisdictions with which we have already established a relationship for the exchange of information under existing TIEAs and to negotiate new TIEAs with other countries that are appropriate automatic exchange partners under the CRS. We have already identified some of these countries which will be outlined to you later.
The final principal to the implementation of the CRS from a legal perspective, is the negotiation of a competent authority agreement with the automatic exchange partner. These are agreements at the administrative level with counterpart competent authorities in other countries to activate and provide the mechanics for the automatic exchange, including what, how, and when information is to be exchanged. Under the CRS, this competent authority agreement can be negotiated on a bilateral basis, or the country can sign on to a standardized multilateral competent authority agreement to which 51 countries currently are signatories (although actual information exchange would still occur on a bilateral basis).
We know that cross-border tax evasion is a problem faced by jurisdictions all over the world. International cooperation and sharing of information between tax authorities has been identified as essential to tackling this problem. The Act is a key component of the Bahamas’ commitment to the international fight against tax avoidance and to ensuring compliance with the standards set by the OECDs Global Forum of which the Bahamas is a member country.
By participating in this international effort, we are enabling the Bahamas tax authority, under the Ministry of Finance as the Competent Authority for The Bahamas, to gather financial account information for reportable account holders and to then transmit that information to the relevant tax authorities in other countries with whom the Bahamas has signed agreements. This will enable those countries to be able to identify persons who may choose to dishonestly hide their foreign income so that they may avoid paying the taxes they are obliged to pay in their home countries.
Globalization and other technological advances have made it easier for individuals to hold investments in financial institutions all over the world. This fact has increased the ease and opportunity for tax evasion. The Bahamas is committed to remaining a compliant jurisdiction as a long standing and respected international financial centre.
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. Persons 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.
Thank you ladies and gentlemen. Enjoy the rest of the briefing which will be very helpful to you as you plan how your institutions will comply with the Act for the implementation of the Common Reporting Standard.
Bahamas Information Services