Bermuda Investment Advisory Service Approved By IRS

Patricia Calnan, Royal Gazette

16 January 2001

This story is reproduced by kind permission of the Royal Gazette at http://www.accessbda.bm

IN the wake of strict new American Internal Revenue Service (IRS) laws that came into effect as of January 1 of this year, BIAS (Bermuda Investment Advisory Service) has just been approved as a qualified intermediary.

This means that BIAS will not be required to automatically disclose clients' personal details to the IRS, nor will its non-US clients be subject to automatic deduction of 30 per cent withholding tax on interest earned on their investment or sales proceeds and capital gains that might arise from US investments.

BIAS is one of the first investment management firms in Bermuda to receive approval.

Chief executive officer Robert Pires told the Mid-Ocean News this week that the IRS is imposing more onerous reporting requirements on non-US custodians, including asset managers or investment advisers.

"The objective of the IRS is targeted at persons holding US assets from overseas trying to avoid paying US taxes," he explained. "Protecting our clients' interests is of paramount importance and our team has worked hard with our advisers at KPMG to meet the tough deadlines set by the IRS."

Achieving this status, he added, gives his firm an uncommon advantage in the level of service given to clients: "It immediately ensures that our clients will not automatically pay 30 per cent withholding tax on their investments and, at the same time, client confidentiality is preserved.

"By receiving this recognition as an approved trusted intermediary, we are sending a message to the investing public that our business is established on a sound professional footing, with a skilled team managing and protecting their investments."

Offshore firms, Mr. Pires pointed out, that have not been granted qualified intermediary status and which act as agents or fund managers on behalf of their clients will now be required to disclose information about their clients' personal affairs.

"Previously, investment firms around the world were simply required to submit a declaration form W-8 to the IRS stating that the beneficial owner was not a US citizen.

"Now, under these new laws, if the intermediary does nothing, withholding tax will be deducted, requiring the beneficial owner to file a tax return to the IRS in order to qualify for a refund."

Asked how Bermuda, in general, stood with regard to the toughening attitude adopted by the OECD (Organisation for Economic Co-operation and Development), Mr. Pires, who is in process of incorporating a company in the Cayman Islands, said: "I think Bermuda has been extremely progressive in how they have dealt with this issue.

"In the course of setting up our operation in Cayman, I was being asked why Bermuda was `caving in' to the OECD. I pointed out that 75 per cent of the world's stock market lies within the OECD, with more than 50 per cent being in US-domiciled assets.

"If Bermuda had not complied," he emphasised, "we would have had various onerous reporting requirements with respect to the IRS and, secondly, our clients could have been at risk with respect to unnecessary US withholding tax on interest paymemts and capital gaims on US-domiciled investments."

Mr. Pires commented: "BIBA and the Ministry of Finance were very progressive with this whole issue and it was decided it was in Bermuda's best interests to comply with the OECD."

Pointing out that the Cayman Islands were on the original OECD "blacklist", Mr. Pires added: "They have now come round to the Bermuda point of view. So BIAS is now waiting for qualified intermediary status in Cayman before we go ahead with the new company."

BIAS vice-president and senior investment analyst Mark Melvin said: "It appears that Bermuda is the first offshore jurisdiction to be granted Q.I. status. The Bahamas has been given a provisional two-year approval."

He added that BIAS will be subject "on two occasions" in the next six years to an audit by an independent firm.

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