According to a report in the Bahama Journal, the Bahamas' financial services sector has been told that the IRS has so far refused to grant the jurisdiction qualified status under its new withholding tax regime. The newspaper said that John Delaney, Deputy Chairman of the Bahamas Financial Services Board (BFSB), had confirmed that the IRS has placed the country's application on hold due to financial regulatory problems highlighted by this year's FATF and OECD listings.
Just last week Tax-news.com reported that concerns were raised in the House of Assembly by Philip Galanis MP (PLP), who said that the refusal of qualified status would place the Bahamas at a "tremendous risk" of losing business. He had said: 'it is my understanding that those institutions that are unable to obtain qualified intermediary status are likely to see a loss of business from our jurisdiction to those jurisdictions that do qualify.'
As a jurisdiction that does not possess qualified status, Bahamas' financial institutions would be required by the IRS to reveal the identity of clients with US-source income, and to deduct 30% US withholding tax from such income in many cases, or face US sanctions. The regulations will come into force next January.
The Bahama Journal says that Mr Delaney has admitted the country could be placed at a competitive disadvantage. He is quoted as saying: 'What it does show is that we must keep up with the task. The application for QI status cannot be disposed of at least affirmatively until such times as those requirements are met.'
The key obstruction to obtaining qualified status is the issue of "Know Your Customer" (KYC) rules. They are an internationally accepted process of confirming the identity of account holders but have not yet been fully implemented by the government. Philip Galanis said the problem is that the KYC rules are not codified: 'I think that it is just a further tightening of the noose around our financial services sector,' he is reported to have said to the Bahama Journal.
He continued: 'This does not bode well for the Bahamas at all and I hope that as quickly as possible the IRS will review the situation or that they will recognize that the laws that we are now putting on the books are intended to satisfy the FATF and other multilateral agencies that we are in fact doing what we should be doing.'
However, it is not all yet doom and gloom as Sir William Allen, the Minister of Finance, is still hopeful that the Bahamas could yet become a qualified jurisdiction before the IRS deadline of 1 January 2001, due to the continuing programme of implementing legislative and regulatory changes to the financial sector.
In addition, the BFSB is planning to canvass the financial services sector to discuss the feasibility of a "Standards and Practices Committee" as a standing committee of the Board. The body would be responsible for promoting and encouraging adherence to best international standards and practices by members of the BFSB including KYC and counter money laundering systems and procedures.
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