What the Finance Minister told Parliament
Finance Minister Bob Richards updated the House of Assembly on talks between both Bermuda and the United Kingdom, and Bermuda and the United States about tax information exchange agreements (TIEAs) on Friday.
He told MPs:
l Bermuda’s dependant territory status means Bermuda is required to sign a tax information exchange agreement with the United Kingdom (UK).
l The UK Treasury also “encouraged” Bermuda and all other Crown Dependencies and Overseas Territories to sign tax information exchange agreements with the US.
l The US has proposed two FATCA reporting options:
Under IGA Model 1 financial institutions would be required to provide US client data to their government authorities, who would vet the information for correctness and accuracy before making an annual filing to the IRS, or
Under IGA Model 2 a jurisdiction agrees to create a piece of legislation that would require its financial institutions to register with the IRS directly and submit annual filings of its US clients’ accounts and investments to the IRS, also directly. Government would not be involved in the annual reporting process but would ensure compliance, and assist the IRS in their investigations of non-compliant US clients, in Bermuda’s case in the form of group requests for information under the US-Bermuda tax information exchange agreement (TIEA).
l Bermuda will sign Foreign Account and Transaction Compliance Act (FATCA) intergovernmental agreements with both the US and the UK “as soon as possible”, and intends to “conclude and initial both the US and UK Intergovernmental Agreement (IGA) Model 2 documents by the end of this summer”.
l Bermuda has opted for IGA Model 2 because without an income tax system or central filing system to register account data on personal income, it means undertaking the “mammoth task” of creating a secure IT structure and legal platform. There would also be the need to hire additional government personnel to vet the information being deposited from the various financial institutions. It would be expensive and would open the Government to legal action should incorrect information be released to US authorities.
l Government began consultations with industry stakeholders a year ago about the IGA model options.
l On April 10 the Finance Minister announced to industry representatives the intention to recommend to the Cabinet that Bermuda should negotiate a US IGA Model 2.
l HM Treasury officials visited Bermuda in May to negotiate with the Bermuda FATCA team
l Ministry of Finance officials and key industry representatives have begun formal official negotiations on the US FATCA IGA Model 2 and will meet with US Treasury officials this week in Washington, DC.