FATCA & CRS Update - Q1 2017

In an Industry Advisory dated 3 March 2017, the Cayman Islands Department for International Tax Cooperation announced that it will adopt a 'soft opening' for the first year of the Common Reporting Standard.

CRS Notification and Reporting Dates Extended

In an Industry Advisory dated 3 March 2017 (the “Advisory”), the Cayman Islands Department for International Tax Cooperation (“DITC”) announced that it will adopt a ‘soft opening’ for the first year of the Common Reporting Standard (“CRS”), which essentially provides an extension to the deadlines by when Cayman Islands Financial Institutions (“FIs”) are required to meet their 2017 notification and reporting obligations under the CRS.   Cayman FIs will now have until 30 June 2017 to register with the Cayman Islands Tax Information Authority (“TIA”) on the AEOI online portal and until 31 July 2017 to comply with the first reporting obligation regarding accounts held during 2016 (provided the reports are submitted and showing the status of “Accepted” on the Cayman AEOI portal by that date) without the TIA considering compliance measures or penalties.  This will allow Cayman Financial Institutions a further two months in which to undertake their notification and reporting obligations under the CRS this year.

UK FATCA Reporting

In the Advisory, it was confirmed that Reporting FIs will not have notification or reporting obligations regarding UK FATCA this year onwards because those obligations are superseded by the corresponding obligations under CRS (i.e. any reporting that would otherwise have been required in respect of Account Holders and Controlling Persons who are Specified UK Persons under UK FATCA must now be made in respect of those persons who are Reportable Persons for CRS purposes on the basis of their UK residence).

US FATCA Reporting

The notification and return deadlines for US FATCA are 30 April 2017 and 31 May 2017 respectively. The DITC confirmed in the Advisory that there will be no deferral of these deadlines for US FATCA in 2017.

CRS News and Updates

Version 2.0 of the Cayman Islands CRS Guidance Notes (the "Guidance Notes") is expected to be published by the DITC shortly following consultation with industry. Please contact your usual Stuarts contact if you would like a copy of the consultation draft Guidance Notes which were issued in early March.

As we have reported previously, reporting FIs must now adopt and implement written policies and procedures setting out how the Reporting FI will address its obligations under CRS. The Draft Guidance Notes provide that such policies and procedures must be appropriate for the type of institution, and should reflect any delegation to third parties. An FI that has delegated its CRS obligations should still have written policies and procedures which describe: (i) what functions have been delegated; (ii) the management/oversight of the delegation; and (iii) the performance of any CRS obligations that have not been delegated.

When an FI registers with the TIA, in addition to providing the name and contact details of the individual who has been authorised by that FI to act as the principal point of contact (“PPoC”), an FI must also provide the TIA with the name and contact details of a separate person who the FI has authorised to give notification to the TIA of a change in the PPoC.  The DITC is expected to issue an updated user guide for the AEOI online portal and this user guide will specify the documents required to be submitted as evidence in support of the appointment of the PPoC and the person authorised to give change notices in respect of the PPoC. 

Please note that even if a Cayman FI has no reportable accounts for a reportable jurisdiction that FI must file a nil return via the AEOI online portal. It is anticipated that such nil returns will be filed using a single check box via the online portal.  The list of reportable jurisdictions has not yet been published.

Investment Managers and Advisers

Cayman Islands investment managers and advisers are classified as Investment Entities and as Cayman Reporting Financial Institutions for CRS purposes and will therefore have all the obligations under Part 2 of the CRS regulations. This is in contrast to the position under similar regulations regarding FATCA which classify most investment managers and advisers as Non-Reporting Financial Institutions which do not impose a notification obligation on such entities.  Investment managers and advisers should therefore review their classification under CRS and  not assume that it is the same as under US and UK FATCA.

Whilst investment managers and advisors are Reporting FIs under CRS, it is unlikely that such entities will have any financial accounts. In contrast to the position on other Investment Entities, the CRS provides that the Equity and Debt Interests of investment managers or advisers will only be treated as a “Financial Account” if the class of interests was established with a purpose of avoiding the reporting obligation. It follows that investment managers or advisors will generally be able to satisfy their annual reporting obligation by filing a nil return in respect of all Reportable Jurisdictions.

Cayman Islands FIs that are in liquidation or being wound up

A Cayman Financial Institution will, so long as it exists, continue to have the obligations which the CRS Regulations impose on it as a Cayman Reporting Financial Institution or a Non-Reporting Financial Institution, as the case may be.  The Draft Guidance Notes state that liquidators (or equivalent) must ensure that the Cayman Financial Institution continues to satisfy all its obligations under Part 2 of the CRS Regulations.  Further, any liquidators (or equivalent) or other representatives of a Cayman Financial Institution who were responsible for the final liquidation or dissolution of a Cayman Financial Institution have duties to maintain the Cayman Financial Institution’s records and to respond to the TIA’s information requirements under regulation 12 of the CRS Regulations for six years following such final liquidation or dissolution. These records may be held by a delegate.

This publication is for general guidance and is not intended to be a substitute for specific legal advice. Advice should be sought about specific circumstances.