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Richards: Bermuda required to sign tax agreement with UK

Bermuda’s dependant territory status means Bermuda is required to sign a tax information exchange agreement with the United Kingdom (UK), Minister of Finance Mr ET Richards announced in the House of Assembly on Friday.

The UK Treasury has also “encouraged” Bermuda and other dependant territories to sign a tax information exchange agreement with the US.

Mr Richards said that Bermuda will sign agreements with both the US and the UK “as soon as possible.”

In his statement, he told Members of Parliament: “Mr. Speaker, the Ministry of Finance intends to conclude and initial both the US and UK IGA Model 2 documents by the end of this summer with a view to sign both sets of Foreign Account and Transaction Compliance Act (FATCA) intergovernmental agreements as soon possible.”

He also announced that in May HM Treasury officials visited Bermuda to take part in negotiations with the Bermuda FATCA team which included Ministry of Finance officials and key industry representatives.

Mr Richards, describing the background to Bermuda’s FATCA agreement, told the House that the UK was the first signatory to the US FATCA and signed an’ IGA Model 1’ agreement. “In October 2012 HM Treasury wrote to the Crown Dependencies and the Overseas Territories instructing us that it encourages the Crown Dependencies and Overseas Territories to sign a FATCA intergovernmental agreement with the US. It was also noted that the UK would require the Crown Dependencies and Overseas Territories to also sign a similar agreement with the UK based upon whichever model the respective Territories had agreed with the US.”

He told the House “ ... the United States of America, under the HIRE Act 2010, created the Foreign Account Tax Compliance Act. The intent behind FATCA is to keep US persons from hiding income and assets overseas and requires foreign financial institutions to perform increased due diligence on US clients with worldwide investments and accounts or face a thirty percent withholding tax on those US client investments and accounts.”

The US had proposed two reporting method options, he said. The Intergovernmental Agreement allows the US Treasury and the governments of jurisdictions or the financial institutions in those jurisdictions worldwide to exchange information on US clients’ investments and accounts.

He explained that under IGA Model 2 a jurisdiction agreed 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 directly. “Under IGA Model 2 the Government is not involved in the annual reporting process but will ensure compliance with the above mentioned legislation.

“The Government will also assist the IRS in investigations of non-compliant US clients in the form of group requests for information under the US-Bermuda tax information exchange agreement (TIEA).”

He said that Bermuda was in “ ... a very unique position as we actually had a choice as to which IGA Model we could choose’ explains that other jurisdictions have data protections legislation which conflicts with the IGA Model 2 provisions of direct reporting by financial institutions to the IRA.

Mr Richards explained under IGA Model 1 the financial institutions worldwide 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. “Under this Model jurisdictions like Bermuda which do not have an income tax system or central filing system to register account data on personal income, would face a 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 within a particular jurisdiction.

“Simply put, IGA Model 1 translates into increased cost for the Government and creates an opportunity for legal proceedings against the Government by the US clients of the various financial institutions should the filings to the IRS be incorrect,” he said.

Consultation on the IGA model options with industry stakeholders began a year ago, he said. “The Ministry carefully weighed the views and concerns of industry stakeholders as well as the national interest and on April 10, 2013 at the final industry stakeholder consultation, I announced to industry representatives the intention to recommend to the Cabinet that Bermuda should negotiate a US IGA Model 2 for various reasons.

“The most important reason for this decision was that the US IGA Model 2 best suits Bermuda’s Tax Information Exchange Agreement relationship with the US. Honourable Members will be aware that our current relationship with the US provides significant benefits to our economy and should not be disturbed.”

He said: “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 next week in Washington DC.”

Tax issue update: Finance Minister Finance Bob Richards

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Published June 03, 2013 at 9:00 am (Updated June 02, 2013 at 5:14 pm)

Richards: Bermuda required to sign tax agreement with UK

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