News & Insights

FATCA and Common Reporting Standard

The deadline for making the US FATCA notifications and submitting returns in relation to 2014 have now passed. On 16 October 2015, the Cayman Islands Tax Information Authority CRS Regulations were brought into effect.

US FATCA 

The deadline for making the US FATCA notifications and submitting returns in relation to 2014 have now passed.  The Cayman Islands Tax Information Authority (“TIA”) subsequently transmitted the first set of data to the US Inland Revenue Service in September 2015.  If any Cayman Islands Financial institution (which includes most hedge and private equity funds) has not yet notified the TIA that it is a reporting Financial Institution nor filed its return in relation to accounts held by US investors during 2014, it should do so now as a matter of urgency.  Please contact us if you need any further information in this regard.

The US is a non-participating CRS jurisdiction and therefore the US FATCA legislative framework in the Cayman Islands will continue to operate as normal.

CRS

On 16 October 2015, the Cayman Islands Tax Information Authority (International Tax Compliance) (Common Reporting Standard) Regulations, 2015 (the "CRS Regulations") were brought into effect.  The CRS Regulations are the means by which the OECD Common Reporting Standard (the “CRS”), being due diligence and reporting standards for the global automatic exchange of information for tax purposes (“AEOI”), are to be implemented in the Cayman Islands.   It is anticipated that the CRS Regulations will shortly be followed by further regulations which will deal primarily with enforcement of the CRS and penalties for non-compliance.

In many ways, the obligations under the CRS Regulations apply in the same manner as FATCA and, specifically, to Reporting Financial Institutions ("Reporting FIs").  A Depository Institution, Custodial Institution, Specified Insurance Company and an Investment Entity (which includes most funds) are all considered FIs for the purposes of the CRS Regulations and, again, the relevant definitions largely mirror those used in FATCA.

The requirements of the CRS Regulations are also similar to FATCA. They require: 

  1. the establishment by Reporting FIs of policies and procedures designed to identify an account holder or controlling person that is tax resident in a jurisdiction that is participating in the implementation of the CRS (a “Participating Jurisdiction”) and to apply the due diligence procedures set out in the CRS (commencing 1 January 2016 for new accounts); 
  2. that due diligence information, and a record of the procedures taken to comply, must be retained for six years from the end of the year the information was obtained or the procedures were carried out; 
  3. a Reporting FI with reporting obligations to electronically notify the TIA (through the TIA’s online AEOI portal before 30 April of the first year the Reporting FI is required to comply with the reporting obligations) of the name and categorisation of the Reporting FI and the name, address designation and contact details of an individual authorised to be the principal point of contact of the Reporting FI; and 
  4. a Reporting FI to electronically file a return (report) of Reportable Accounts with the TIA through the AEOI portal before 31 May of the year following the calendar year to which the report relates.  Accordingly, the first reporting year under the CRS Regulations is 2016 with reports due by 31 May 2017.

It is important that a Reporting FI ensures that its systems can identify account holders (and their 'know your client' information) in each of the Participating Jurisdictions from 1 January 2016.  In this regard, the Ministry of Financial Services has published self-certification forms that the industry may use which were developed by the FATCA/CRS Working Group, for compliance with the CRS, and US and UK FATCA. They may be used as is, or modified, as necessary.  Please let us know if you require a copy of these self-certification forms.

The Ministry of Financial Services has advised that Self-certifications should be obtained and validated as part of financial institutions’ account opening procedures. If it is not possible to obtain a self-certification on ‘day one’ of the account opening procedures, it should be obtained and validated as quickly as possible and in any event, no later than 90 days after the account has been opened.  If a financial institution fails to obtain a self-certification within 90 days, it must report the account to the Cayman Islands Department for International Tax Cooperation (“DITC”) as undocumented.  Financial institutions with a disproportionate number of undocumented accounts may be subject to DITC compliance reviews, once the review regime has been developed.

In practice, it is expected that FIs will seek to obtain information on all of its account holders and not just those who are tax resident in a Participating Jurisdiction.   Each Reporting FI should also have its own documented set of policies and procedures for international tax compliance.  We recommend that such Reporting FIs update their existing FATCA policies and procedures manuals to include the CRS by 1 January 2016.

The TIA has published a list of Participating Jurisdictions pursuant to the CRS Regulations.

The OECD has published official commentary on the CRS, which the CRS Regulations acknowledge is an integral part of the CRS and accordingly applies for the purposes of the AEOI under the CRS Regulations.   In addition, the OECD has published a CRS Implementation Handbook which, although not part of the CRS, provides a practical guide to implementing the CRS to both government officials and FIs and includes a comparison between the CRS and FATCA.  The commentary and CRS Implementation Handbook can be found on the OECD website (www.oecd.org/tax/automatic-exchange/).

The Ministry of Financial Services anticipates that CRS Guidance Notes will be published in Q1 2016, following consultation with the FATCA/CRS Working Group. The Working Group is currently considering issues related to CRS implementation, and its guidance notes will be limited to practical aspects of the CRS that are specific to Cayman.

Read more on the Implementation of the OECD Common Reporting Standard in the Cayman Islands.

UK FATCA

UK FATCA was implemented in Cayman in accordance with the Cayman-UK IGA signed in November 2013; and The Tax Information Authority (International Tax Compliance) (United Kingdom) Regulations, published in July 2014.  The Ministry of Financial Services, Commerce and Environment has advised that, in transitioning to the CRS, the UK has indicated that for 2016, both the UK IGA and CRS will be operational for all Overseas Territories and Crown Dependencies. In order to comply with both, Cayman Islands financial institutions will need to file returns under the CRS, with supplementary information on pre-existing low-value individual accounts, and pre-existing entity accounts, to satisfy the UK IGA. It is anticipated that the UK FATCA IGA, regulations and guidance notes will be phased out by 2017.

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