John K.F. Delaney
Higgs & Johnson

John Delaney was Guest Speaker at last month’s luncheon meeting of the Society of Trust and Estate Practitioners.

Mr. Delaney addressed the group of financial services practitioners on the Agreement between the Governments of The Bahamas and the United States of America “For the Provision of Information With Respect To Taxes and For Other Matters”. More widely known as a TIEA, the Agreement was signed during January.

Defining the arrangement as the first ever signed by The Bahamas with respect to the provision of fiscal information, Mr. Delaney highlighted a number of key points on information requests from the US Government:

(a) will relate only to US Federal Taxes (not State, e.g.)
(b) will be used only as a last resort, i.e. when the Competent Authority of the U.S. is unable to obtain the information by any other means
(c) must be framed with the greatest degree of specificity

The latter two provisions were considered particularly advantageous to The Bahamas, as they appear to be unique to this TIEA. With regard to (c), this would prevent the so-called “fishing trips”. Additionally, under clauses relating to the protection of information, the Agreement does not permit the Government of the U.S. to share information obtained from The Bahamas with an agency or employee of any other government.

An equivalency provision in the Agreement allows consultations between the two Governments – with appropriate modifications — should the U.S. enter other arrangements that differ in “material aspect”. That is, it guards The Bahamas from becoming disadvantaged vis a vis competing jurisdictions.

Of particular note was that while the Agreement does not constitute a mutual “exchange of information” as such, it provides two key advantages:

(i) U.S. certification of The Bahamas for Qualified Intermediary (QI) status; and
(ii) Convention Tax Benefits

Although signed in January, the Agreement will come into effect when the U.S. and Bahamas have exchanged diplomatic notes confirming that the constitutional and statutory requirements necessary have been met; this is expected to take place in due course. However, Articles (2-3) relating to the provision of information with respect to US taxes will not take effect until January 2004 (criminal matters) and January 2006 (civil matters). Article (5) relating to the convention tax benefits will become effective January 2006.

Mr. Delaney was of the opinion that issues relating to the “process” of information exchange and the degree of specificity of requests will be addressed in the Act of Parliament required to give effect to the Agreement. On the former, he speculated this will be similar to the process followed for requests under the Mutual Legal Assistance Treaties (MLATs) already in existence with the United States, United Kingdom, and Canada.

As a final note, STEP members and guests were informed that the US Government, as requesting party, will reimburse The Bahamas for direct costs involved in providing requested information. This is provided for under Article 6, relating to Administrative Provisions.