HIGGS & JOHNSON hosted its annual client seminar on Thursday 18 October, 2012 under the theme 'Changing Times: Ensuring Success in a New Era'. Welcome remarks were given by Oscar N. Johnson, Jr., Managing Partner of the firm. The Rt. Hon. Perry G. Christie, Prime Minister, then gave a speech emphasizing what is needed for ensuring success of the financial services industry and outlined new legislation which will allow The Bahamas to meet the needs of its clients.
The seminar concluded with a break out session on the topic "Increasing Transparency & Information Exchange - What does this mean for the future of financial services in international financial centres?" Given the multitude of international and inter-governmental initiatives, this question is the hot topic of the year. Panelists were James Smith, CBE., J.P. of CFAL, Bahamas, Attorney Mark Sheer of Gunster Law Firm of Miami, Florida and Higgs & Johnson Senior Associate, Tom Mylott, Higgs & Johnson Partner Heather L. Thompson served as the moderator for the session.
The initial questions for discussion were (i) whether a small International Financial Centre (SIFC) can adopt its own strategy ignoring international and intergovernmental exchange of information treaties and arrangements and (ii) whether independent countries are in a better position than non-independent countries to navigate these straits. There was a consensus between Mr. Smith and Mr. Mylott that while it is not impossible for a SIFC to adopt its own strategy, it would not be able to entirely ignore what is happening in the international community. Mr. Sheer added that the suggestion would be somewhat of a practical impossibility as many financial institutions span several jurisdictions. As to the question whether independent countries are in a better position than non-independent countries, the panelists agreed that there are "up sides" and "down sides" to both in that there are some policies of non-independent countries which independent countries may find useful and vice versa.
The panelists expressed their views on whether automatic information exchange was inevitable. Mr. Sheer considered that it was. Mr. Smith however indicated that while automatic information exchange may well occur, the degree of the exchange would vary among different jurisdictions. In his contribution on the question, Mr. Mylott compared the Swiss model to the United States' Foreign Account Tax Compliance Act (FATCA). Switzerland recently entered into withholding tax agreements with the governments of the UK and Austria allowing for the collection of past and unpaid taxes on undeclared assets and taxes on future earnings. By virtue of these withholding tax agreements the British and Austrian governments would be able to collect taxes owed to them while Switzerland would be able to retain its banking secrecy and privacy laws. The agreements would also preserve the anonymity of Switzerland's foreign account holders. The Swiss model would guarantee a significant amount of revenue but there will be no details on the particulars of the bank accounts.
Mr. Scheer expressed the view that under the provisions of FATCA, any U.S. person who holds an interest in any foreign financial assets (which include foreign financial accounts) must disclose these assets to the U.S government. Beginning in 2014, FATCA will mandate that all foreign financial institutions enter into an agreement with the U.S. Treasury Department to report information about its U.S. account holders (including names, account numbers and account balances) each year. Where a country has privacy or secrecy laws, any U.S. account holder should be asked to waive their rights under the privacy or secrecy rules so that their information can be reported to the U.S. Government. Should that U.S. client refuse to waive their rights, that client's bank account should be closed. Mr. Sheer expressed doubt that the U.S would ever adopt the Swiss approach since it flies in the face of what FATCA is aiming at and that is, obtaining details of foreign bank accounts.
Will SIFCs be able to implement automatic information exchange?
In responding to the question Mr. Sheer expressed the view that change must come from the financial institution rather than by government implementing a policy. Mr. Mylott disagreed since in his view it would be risky for a financial institution to comply with the FATCA rules for automatic information exchange without the involvement of the government. Mr. Smith expressed his concerns about SIFCs implementing automatic information exchange as countries have different confidentiality rules some of which may prohibit the automatic information exchange anticipated under FATCA. Before a SIFC is able to implement automatic information exchange, there must be legislation which clearly specifies the consequences of breaching the country's confidentiality rules.
Recommendation
Given the implications of automatic information exchange and the possibility of the SIFC model of taxation changing as a result, panelists were of the view that financial institutions and governments should not commit to automatic information exchange until it becomes a global standard. For The Bahamas, Mr. Smith recommended that the government consider revising The Bahamas' existing Tax Information Exchange Agreements with other countries so that it obtains tangible benefits before completely changing its mode of taxation.
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