By TAMARA McKENZIE

Guardian Staff Reporter

The Tax Information Exchange Agreement (TIEA) between The Bahamas and the United States comes into effect Jan. 1, 2004.

The wide-sweeping measure will give the minister the power to obtain information pursuant to a request from the United States, as currently, no such power exists under the laws of The Bahamas, Minister of State for Finance James Smith told the Senate on Monday.

However, the Act provides safeguards that allow the minister to deny a request where the information being requested is subject to legal privilege, public policy and other national security interests, he said.

"Additionally, a request may be denied if it is outside the statutory time limitation applicable under U.S. law," he explained during the Senate debate on TIEA Bill that was passed in the upper chamber yesterday afternoon.

The TIEA was signed in Jan. 2002 between the Governments of The Bahamas and the United States of America. The signing secured the full six-year designation of The Bahamas as a Qualified Jurisdiction under the United States IRS qualified intermediary programme. Prior to signing the TIEA, The Bahamas was granted, effective July 2000, only a two year designation as a qualified jurisdiction, which was due to expire in July 2002.

The designation as a QJ enables local financial institutions that invest in U.S. securities to benefit form a reduced withholding tax on those investments. There are approximately 29 jurisdictions that have applied to and received accreditation from the IRS as Qualified Jurisdictions. There are about four such applications pending at the moment.

In addition, The Bahamas after 2006 can be deemed a jurisdiction in which U.S. taxpayers may claim convention tax concessions for attendance at conventions, seminars and the like. This will prove to be a tremendous boost to the tourism convention business.

Meanwhile, Senator Smith noted that a request by a minister to obtain information could only be met if they meet the established criteria. The request, he said, must: Specify the name of the tax payer, the tax period in question, describe the information being sought and its relationship to the tax period, the person and location of the information in The Bahamas and a declaration that the information is foreseeably relevant or material to the administration of a criminal tax matter for any request received prior to Jan. 1, 2006 and for both civil and criminal after that date.

"If the request relates to a non-U.S. resident, the IRS must satisfy the minister that the information is foreseeably relevant or material to a valid tax matter," he said, adding that in the case of requests for civil tax assistance or in relation to non-residents, a senior official of the U.S. government must certify that the information is "foreseeably relevant" or material to a U.S tax matter.

"The Bahamas only has to comply with a request if the information is in The Bahamas," he said.

Senator Smith further noted that the minister may also appoint an officer, who on proper warrant obtained from a magistrate, may enter a premises to search and seize articles or information to prevent the commission of an offence that would endanger on such premises, information that has been requested by the minister. He added that where continued access for the conduct of a business is necessary in relation to articles seized, the Minister is obliged to afford such continued access.

According Senator Smith, the minister has a 20 day holding period in relation to information supplied pursuant to a Notice before transmitting such information onto the U.S. authorities, and the minister may extend this 20 day period to account for any lawful challenge which may be brought against the minister as an objection to the exercise of his power to obtain such information.

"The Act provides customary offences for failing to cooperate with the minister or any duly authorised officer of his. The penalties under the Act are: $5,000 fine or six months in prison, or both," he said.

A Ministerial Tax Agreement Advisory Committee would also be established, Senator Smith said, adding that both governments (U.S./Bahamas) are obligated under the Agreements to treat all information between each other as confidential.

"The U.S. government has agreed under the ancillary competent authority agreement to reimburse The Bahamas government for all direct costs incurred in meeting a request," said Senator Smith.

Caption: TAX EXCHANGE - The Tax Information Exchange Agreement Act was passed in the Senate on Monday. Pictured is Minister of State for Finance James Smith outlining provisions under the legislation Posted: Tuesday December 23,2003 (Staff photo by Tamara McKenzie)

Posted: Tuesday December 23,2003