Industry News

Bahamas Targets End of September for AEOI/CRS Legislation Review

Thursday August 18th, 2016

Category: Newsletter Articles, Tax Co-operation, International Issues, Industry Information, BFSB News

The Bahamas expects to have draft enabling legislation and supporting regulations and guidance notes submitted to the Government by the end of September for vetting, review and finalization to ensure it meets its commitment to implement the global standard for Automatic Exchange of Information referred to as the Common Reporting Standard (CRS) by 2018.

The Bahamas committed to implementing the new universally agreed and ascribed global standard of automatic exchange of information by December 31, 2018 using a bilateral approach, and having regard to the following:

  1. The need to meet the associated timelines with respect to the completion of the domestic legislative process, and completion of all relevant law making steps.

  2. Confidentiality and protection of financial data being a fundamental element of agreeing to the Common Reporting Standard and the highest level of data protection being negotiated with interested appropriate partners as part of the bilateral agreements.

  3. The Receiving Country having a framework in place to ensure Confidentiality, Data Protection and Use of Information for the specified purpose.

The rules and method of exchange of information pursuant to the Standard is set forth in the Common Reporting Standard released by the OECD. A country can choose its legal basis for implementation of the Standard and requirements under the CRS. The OECD has made it clear in the CRS itself that a country can form the legal basis of its obligations under the Standard either through bilateral agreements, or through multilateral agreements, and specifically The Multilateral Convention on Mutual Administrative Assistance in Tax Matters (the “Convention”).

The Ministry of Financial Services as project lead for AEOI/CRS assembled a public sector technical team drawn from the Ministry of Finance to drive this project in collaboration with industry stakeholders, including the Bahamas Financial Services Board (BFSB) and the Association of International Banks and Trust Companies in The Bahamas (AIBT). The agreed action plan included having the proposed legislation ready for review and consultation by the end of September 2016. A team of local legal consultants was engaged to prepare the draft the legislation, regulations and guidance notes required for the implementation of AEOI/CRS. BFSB and AIBT are coordinating a consultative process to engage with industry for input and feedback once the initial draft documents have been prepared.

Frequently Asked Questions

What did The Bahamas commit to with respect to the automatic exchange of information?

The Bahamas committed to adopting the Standard on the Automatic Exchange of Information (AEOI) Standard with interested and appropriate partners through bilateral mechanisms that must meet standards on confidentiality, data safeguards and proper use of information. The Bahamas recognized and fully agreed that a receiving jurisdiction must meet comprehensive and objective standards of confidentiality and use of information before automatic exchange of information can be agreed. The AEOI Standard does not have a withholding tax penalty component for non-compliance.

Did The Bahamas Commit to the OECD Convention on Mutual Administrative Assistance in Tax Matters (OECD Convention)?

No, The Bahamas committed to a bilateral approach. The OECD Convention is a multilateral juridical instrument (i.e. with multiple partner jurisdictions through the same agreement) which establishes the legal basis for all forms of international cooperation on tax matters including:

  • exchange of information upon request,
  • automatic exchange of information,
  • spontaneous exchange of information,
  • simultaneous tax examinations;
  • tax examinations abroad;
  • recovery of tax claims;
  • retroactive application in certain cases;
  • tax claim conservancy and service of documents.

What are the key differences between the AEOI Standard and the OECD Convention?

The AEOI Standard and the OECD Convention are very different documents and serve different purposes. The AEOI Standard can rely on either a bilateral legal instrument such as a treaty or a multilateral legal instrument such as the OECD Convention as its legal basis. In The Bahamas’ case, bilateral legal instruments will be used as the legal basis for the exchange of information with appropriate partner jurisdictions.

The AEOI Standard sets out the key principles and obligations towards operationalizing the automatic exchange of information from one country to another. Unlike the OECD Convention, the AEOI Standard is not an international legal instrument.

The AEOI Standard document:

  • Contains a Model Competent Authority Agreement. The Model Competent Authority Agreement draws heavily on the Intergovernmental Agreements (IGAs) utilized under the Model 1 approach of the United States Foreign Accounts Tax Compliance Act (FATCA).

  • Contains the Common Reporting Standard which highlights the technical solutions and schema for implementing the AEOI Standard.

  • Addresses the issue of data security and confidentiality with respect to Automatic Exchange of Information. The OECD has stated that AEOI may not be appropriate where the confidentiality and security of the data cannot be ensured in its guidance note on AEOI.

  • Does not mandate that information be exchanged on a retroactive basis, or contain a mandatory “look back” period.

As the AEOI Standard calls for the exchange of information between countries, a juridical/legal instrument such as a bilateral FATCA styled intergovernmental agreement, a bilateral Treaty or a Multilateral instrument must be used in addition to domestic legislation to give effect to the Standard. The Bahamas has elected to use a bilateral approach to implementing the standard - similar to the process of exchange of information upon request or the intergovernmental agreement approach used under FATCA.