The Bahamas has secured further approval by the US Treasury of its Know-Your-Customer rules and its qualified jurisdiction status under the Internal Review Services program, through the signing of an agreement for the provision of information with respect to taxes and for other matters between the two Governments.
Under the agreement, The Bahamas has made a commitment to provide as of 2005 (i.e, for taxable years which begin in January 1, 2004) information that may be available in The Bahamas that is relevant to a particular case, where the United States Government has exhausted all measures within the United States, and the Ministry of Finance in The Bahamas is of the opinion that sufficient evidence exists to support criminal tax evasion of United States federal tax.
It is noteworthy that any information obtained through this agreement cannot be shared with other countries. Further, in addition to the burden to prove wrongdoing, strong anti-fishing provisions are an integral part of the agreement.
Similar arrangements are slated to begin in 2007 with respect to civil tax offense of United States Federal tax laws. However, The Bahamas has continued to seek a level playing field by referring to the terms of similar agreements that the United States may negotiate with other countries over the upcoming years.
On January 1, 2001, the U.S. Internal Revenue Service established a QI withholding agreement to simplify withholding and reporting obligations for payments of income (including interest, dividends, royalties, and gross proceeds) made to an account holder through one or more foreign intermediaries. For example, if the foreign intermediary is not a QI and the payor does not receive the Form W-9 (indicating the tax identification for the payee), the payor must generally withhold at a 31 percent rate.
At that time, The Bahamas determined that it wished to provide its financial institutions, citizens and clients with unrestricted and seamless access to the United States market. The Internal Revenue Service affords this seamless access only where they have the greatest confidence that such self-regulation under the Qualified Intermediary system will be effective. The IRS further determined that the Qualified Intermediary system would only be granted to countries where the United States has a bilateral tax treaty or tax information exchange agreement.
It is out of this determination that The Bahamas has entered into a TIEA with the United States and paved the way for institutions operating in The Bahamas to obtain Qualified Intermediary Status. The Bahamas, like other offshore countries, received provisional Qualified Jurisdiction status on January 1, 2001 the renewal of which was subject to the execution of a TIEA prior to
July 2002.