It’s a billion dollar game for the banks across the region, but the banks have to be positioned to be a FACTA compliant by the deadline i.e. June 30th 2014. The implementation of each regulation for the banks carries a price tag and in this case some banks, like HSBC have to set aside $200 million to be a FACTA compliant.
Bahrain, which had opted FATCA under a Model 1 IGA, is monitoring progress and has been interacting with the banks and financial institutions as the latest update meeting was held at end of September where CBB was briefed by the banks on their preparations.
Deloitte Middle East team had conducted an overview of the effect of an IGA model 1 agreement in Bahrain including differences from the standard requirements; benefits for institutions of an IGA, and potential challenges faced in its implementation.
The event attracted around 20 representatives of the banks and the Advisor to the Central Bank Richard Ellis and BAB was presented by Ali Kazimi FATCA Leader, Head of International Tax Services Dubai.
There was another presentation FATCA – What to do now: considerations of the operational challenges faced by institutions, options available and actions that institutions need to focus on was presented by Umair Hameed, Director Financial Advisory Services, Dubai.
Ali Kazmi highlighting the advantages of the Kingdom of Bahrain’s Model 1 IGA said in this scenario the legislation or issue will be treated as a local.
“The Government will collect and collate the information required by the IRS under FACTA and the same will be disseminated to the US authorities hence minimising the direct interaction of the Bahraini institutions with the US tax collection authorities,” he said.
“HSBC is one of the banks which announced the $200 million figure but overall it will be a difficult to quantify the actual financial impact as it varies from one to other, for example, size of the bank etc.,” Kazmi said.
Upon the extension of the timeline which is June 30th 2014, the Deloitte panel was not convinced whether there would be any further extension in the timeline.
The partner jurisdiction agrees to report to the IRS specified information about the U.S. accounts maintained by all relevant FFIs located in the jurisdiction.
FFIs identify U.S. accounts pursuant to due diligence rules contained in Annex I of the IGA.
FFIs report specified information about their U.S. accounts to the partner jurisdiction.
The partner jurisdiction, in turn, reports such information to the IRS on an automatic basis.
The exchange of information under a Model 1 IGA may be on a reciprocal or nonreciprocal basis.
The United States collaborated with other governments to develop two model intergovernmental agreements (IGAs) to implement FATCA.
All IGAs contemplate that a partner government will require all foreign financial institutions (FFIs) located in its jurisdiction (that are not otherwise exempt) to identify U.S. accounts and report information about U.S. accounts.
Both Model 1 and Model 2 IGAs can be implemented without having in effect a double tax convention or tax information exchange agreement with the United States.
IGAs with partner jurisdictions facilitate the effective and efficient implementation of FATCA.