The Cayman Islands Government has now passed The International Tax Co-operation (Economic Substance) Bill, 2018 (the “Bill”). The Bill has been issued in response to the Cayman Islands’ commitment to the global initiative to combat base erosion and profit shifting.
The Bill does not cover investment funds which is defined as an entity whose principal business is the issuing of investment interests to raise funds or pool investor funds with the aim of enabling a holder of such an investment interest to benefit from the profits or gains from the entity's acquisition, holding, management or disposal of investments and includes any entity through which an investment fund directly or indirectly invests or operates, but does not include a person licensed under the Banks and Trust Companies Act (2018 Revision) or the Insurance Act, 2010, or a person registered under the Building Societies Act (2014 Revision) or the Friendly Societies Act (1998 Revision). “Investment fund business” is defined as the business of operating as an investment fund. “Investment interests” means a share, trust unit, partnership interest or other right that carries an entitlement to participate in the profits or gains of the entity.
The Authority will regard mutual funds licensed or registered with the Cayman Islands Monetary Authority as investment funds for the purposes of the Bill because the definition of investment fund under the Bill is broader than the definition of mutual fund under the Mutual Funds Act, both in terms of the investment interests (versus equity interests) which it issues and also the entities through which an investment fund invests.
The term investment fund includes investment fund itself and also any entity through which the investment fund directly or indirectly invests or operates. For example, this means that any entities through which a mutual fund or other collective investment vehicle invests or operates will not be relevant entities, and therefore would not be regarded as relevant entities, for the purpose of the Bill.
The Bill does cover fund managers who have a license under the Securities Investment Business Act. Investment managers with an exemption under the Securities Investment Business Act are also not covered by the Bill.
At this time, we recommend that our clients notify us if their Cayman Islands entity is carrying out any ‘relevant business activities’ (as defined in the Bill) and to seek our advice on the possible implications.
Read our article on The International Tax Co-operation (Economic Substance) Bill, 2018
Download the PDF - The International Tax Co-operation (Economic Substance) Bill, 2018
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