The Cayman Islands Tax Information Authority advised yesterday that it will allow Cayman Islands Financial Institutions to rely on CRS due diligence procedures for new accounts opened on or after 1 January 2016 to identify specified/reportable persons for the purposes of UK FATCA and CRS reporting. This means that, provided CRS compliant self-certification forms are provided to and returned by new investors/account holders going forward, it is no longer obligatory to include a UK FATCA specific self-certification form.
The Foreign Account Tax Compliance Act (FATCA) is intended to detect and deter the evasion of US tax by US persons who hide money outside the US. FATCA creates greater transparency by strengthening information reporting and compliance through rules around the processes of documenting, reporting and withholding on a payee. More than 90 jurisdictions, including all 34 member countries of the OECD and the G20 members, have committed to implement the Common Reporting Standard for automatic exchange of tax information (“CRS”). Building on the model created by FATCA, the CRS creates a global standard for the annual automatic exchange of financial account information between the relevant tax authorities.
In general, the differences between CRS and FATCA have largely to do with the multilateral nature of the CRS and the US specific attributes of FATCA. The CRS is intended to allow countries to use the exchange system without having to negotiate a separate annex with each counterpart country. The CRS is more closely aligned to ‘UK FATCA’ than US FATCA in terms of account due diligence and related reporting requirements. The principal (but not the only) differences between US FATCA and CRS are:
- Registration – CRS has no requirement to register with any foreign tax authority or to obtain any global identification number (such as a GIIN under FATCA).
- Withholding – while domestic laws may impose penalties for non-compliance, CRS does not impose a punitive withholding tax regime.
- Client Classification – CRS classification is based on tax residency rather than nationality or citizenship. A client could be taxable in several countries in the relevant reporting period. CRS allows reliance on client self-certification.