US & UK FATCA & CRS Update 2016

Any financial institution that has been designated as “sponsored investment entities” (i.e. where another entity acts as its sponsor and carries out its FATCA obligations on its behalf) and that has (or has had) US reportable accounts must, from 1 January 2017, be separately registered with the IRS and have its own Global Intermediary Identification Number (“GIIN”).

Any sponsored investment entities (that have (or have had) US reportable accounts) that have not already obtained with own GIIN should therefore do so as soon as possible.  Each such sponsored investment entity should also update any IRS Form W8 or self-certifications that it has given to reflect its new GIIN.

UK FATCA will be phased-out due to the implementation of the Common Reporting Standard.  However, each Financial Institution that has reporting obligations under UK FATCA will need to file a return under UK FATCA for any reportable accounts held during 2016 by 31 May 2017. These returns are expected to be the final returns for UK FATCA and going forward a Financial Institutions will only report under US FATCA and CRS.

Financial Institutions that are subject to CRS reporting obligations will need to notify the Cayman Islands Tax Information Authority (“TIA”) by 30 April 2017 of such fact and will need to file a CRS return (in respect of reportable accounts held during 2016) by 31 May 2017.

On 14 December 2016, The Tax Information Authority (International Tax Compliance) (Common Reporting Standard) (Amendment) Regulations, 2016 were approved by the Cayman Islands Cabinet. The primary purpose of the revised CRS Regulations is to ensure effective implementation of the Common Reporting Standard by the Cayman Islands.  The TIA has stated that after 2017, all Participating Jurisdictions in the CRS will be subject to an in-depth peer review process facilitated by the OECD. We will be preparing a full update on the revised CRS Regulations in due course but some key information that the Department for International Tax Cooperation (“DITC”) mentioned in its recent industry update included the following:

• it is expected that DITC will publish a revised version of the CRS Guidance Notes in the first quarter of 2017 to reflect the impact of the revised CRS Regulations;
• the TIA has not confirmed the list of Reportable Jurisdictions due to ongoing assessments of Participating Jurisdictions being made by the OECD;
• Cayman Islands entities should review their CRS entity classification as there are differences between CRS and FATCA which may have a significant impact on the respective entity’s obligations particularly entities that may be Non-Reporting Financial Institutions under FATCA (e.g. Investment Managers);
• each Cayman Islands reporting Financial Institution must establish, implement and comply with written policies and procedures to comply with Part 2 of the CRS Regulations. The policies and procedures must state how the FI will address its obligations regarding due diligence, record keeping, notification of the required information and reporting to the TIA via the Cayman AEOI Portal, the appointment of any third parties, and cooperation with the TIA’s compliance measures. Whenever the TIA takes any compliance measures or enforcement action the TIA will expect a Cayman Islands reporting Financial Institution to produce its policies and procedures and will require it to explain any instances of non-compliance with the same;
• a Financial Institution would be deemed to have contravened its policies and procedures if it relied on a self-certification which it knows or has reason to believe is inaccurate;
• a Reporting Financial Institution is required to file a NIL return for all Reportable Jurisdictions in respect of which it had no Reportable Accounts;
• it is an offence for any person to provide a false self-certification to a Cayman Islands Financial Institution. Cayman Islands Financial Institutions and their agents should therefore be aware that a person’s false self-certification may give rise to an obligation to make a suspicious activity report pursuant to the Proceeds of Crime Act of the Cayman Islands; and
• fines of up to $50,000 for any offence by a body corporate or an unincorporated CFI or up to $20,000 for an offence by any other person may be imposed by the Court or by the TIA.  The Revised CRS Regulations include sections setting out the criteria for deciding penalties, the limitation period, the protection against double jeopardy, the steps required to impose penalties including requirements for breach notices and penalty notices, all of which we will include in our note in due course.