Common Reporting Standard
Extension to First Notification and Reporting Deadlines
Financial Institutions ("FIs") in the Cayman Islands are required by law to notify the Cayman Islands Tax Information Authority ("TIA") of their AEOI status (i.e. register) by 30 April 2017. In addition, Cayman Islands Reporting FIs ("Reporting FIs") are required to submit returns to the TIA by 31 May 2017. However, the Cayman Islands governmental department mandated to assist the TIA, the Department for International Tax Cooperation ("DITC"), recently issued an industry advisory (the "Advisory") advising that it will be adopting a soft opening to the upcoming 30 April notification deadline and 31 May return deadline for CRS for 2017. According to the Advisory, Cayman Islands FIs that submit notifications for CRS on or before 30 June 2017, and Cayman Islands Reporting FIs that file "Accepted" returns for CRS on or before 31 July 2017, will not be subject to any compliance measures or penalties.
Updated Regulations and Draft Guidance Notes Issued to Industry
As referred to in our previous update, in December 2016 the Cayman Islands passed the Cayman Islands Tax Information Authority (International Tax Compliance) (Common Reporting Standard) (Amendment) Regulations, 2016 (the "CRS Amendment Regulations") which amend the Tax Information Authority (International Tax Compliance) (Common Reporting Standard) Regulations, 2015 (the "CRS Principal Regulations" which as amended are referred to as the "CRS Regulations"). The CRS Regulations contain, amongst other things, the enforcement powers of the TIA and related penalty provisions.
Version 2.0 of the Cayman Islands CRS Guidance Notes (the "Guidance Notes") is expected to be published by the DITC later this month following consultation with industry. Maples and Calder is actively engaged in the consultation process. A copy of the draft Guidance Notes (the "Draft GNs") issued to industry can be viewed here, with comments due to be provided direct to the DITC by 20 March 2017.
Some of the key provisions of the CRS Regulations and Draft GNs (which may be subject to further change) are as follows:
It is a strict liability offence under the CRS Regulations for any person to make a self-certification that is false in a material particular. It does not matter if: (i) the self-certification was made outside of the Cayman Islands; (ii) the person did not know, or had reason to know, that the self-certification was false; or (iii) the self-certification was provided by someone else. Defences are therefore limited to materiality (i.e. the particular in question is not material), factual mistake (i.e. if the defendant can prove that there was in fact no breach) or if the defendant can prove they had a reasonable excuse.
An FI will also commit an offence if it:
(i) contravenes any obligation under the CRS Regulations; or
(ii) provides to the TIA information that is materially inaccurate.
Other offences under the CRS Regulations include: (i) hindering the TIA from performing a function under CRS; (ii) causing the TIA to breach its confidentiality obligations; or (iii) tampering with information in a way which causes another person to contravene the CRS Regulations.
Criminal liability potentially extends to directors, officers, managers or secretaries (including members or partners in certain circumstances) of an FI unless they can demonstrate that they exercised reasonable diligence to prevent the contravention.
(b) Fine and Penalties
The courts may impose fines of up to $50,000 for an offence by a body corporate or up to $20,000 for an offence by any other person (e.g. individuals). The TIA also has powers to impose administrative penalties up to the same amounts and to impose daily penalties of $100 for continuing contraventions. Unlike the Cayman legislation for US FATCA, the CRS Regulations do not give authority to the courts or the TIA to impose custodial sanctions.
(c) TIA Notification Obligation for all FIs
It is now mandatory for all FIs (reporting and non-reporting) to notify the TIA of: (i) their CRS status and classification; (ii) details of the individual appointed as principal point of contact ("PPOC"); and (iii) details of a second individual who has authority to change the PPOC. FIs that are classified as being non-reporting are required to notify the TIA of the relevant exemption under the CRS Regulations being relied upon.
(d) Nil Returns
In a change to the previous position, a Reporting FI must now file nil returns via the Cayman AEOI Portal (the "Portal") prior to the applicable reporting deadline if it has no reportable accounts for reportable jurisdictions in respect of the previous year. To simplify compliance, it is anticipated that such nil returns will be filed using a single check box via the Portal.
Non-Reporting FIs are not required to file any returns with the TIA.
(e) Policies and Procedures
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 GNs provide that such policies and procedures must be appropriate for the type of institution, and should reflect any delegation to third party service providers (if appropriate), which are still permitted under CRS. An FI that has decided to delegate 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.
(f) US Retirement and Pension Funds
The Draft GNs contain a placeholder with regard to the treatment of US retirement and pension funds constituted as trusts. This reflects an understanding by the DITC that, if such entities are treated as Passive NFEs on the basis of being managed investment entities in a non-participating jurisdiction, the required due diligence burden is likely to be excessive as such pension funds are likely to have a significant number of account holders but few, if any, reportable person account holders. While the official position with regard to such entities has yet to be announced, the DITC continues to engage the OECD on this point.
(g) Dormant or Liquidating Entities
Unlike the position regarding US FATCA, the Draft GNs provide that an Investment Entity does not cease to be classified as such for the purposes of the CRS Regulations, if it is either closed or in liquidation. Accordingly, CRS notification and reporting requirements continue to the point of liquidation or dissolution. Relevant records in respect of the dissolved entity must be maintained for six years following the relevant liquidation or dissolution. The DITC has indicated in the Draft GNs that it does not expect FIs to register on, or report through, the Portal, where they have been dissolved or wound up prior to the Portal becoming available for registration or reporting. However, liquidators will still be required to maintain a liquidated entity's CRS records for six years after liquidation in order to respond to a TIA request for information.
(h) Limited Life Debt Investment Entities
The DITC understands that the OECD has determined that Limited Life Debt Investment Entities ("LLDIEs") should not be regarded as jurisdiction specific low-risk non-reporting FIs. Accordingly, pursuant to the Draft GNs, that non-reporting category has been removed, so any LLDIE that may previously have been relying upon such status will likely now be considered a Reportable FI (investment entity). The CRS Regulations will also need to be amended to reflect this change in treatment. This means LLDIEs are treated differently under US FATCA and CRS.
(i) Self-Certification Forms
It is expected that the DITC will publish updated Entity and Individual Self-Certification Forms for use by industry going forward to reflect the latest position under the CRS Regulations and Guidance Notes.
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.
Clients are reminded that compliance with US FATCA is mandatory under Cayman Islands law for all Reporting FIs and is not contingent upon having US account holders or US situs assets. Cayman Islands law requires all such Reporting FIs to register both with the US Internal Revenue Service for a Global Intermediary Identification Number and with the Cayman Islands TIA. The DITC has noted that more Cayman Reporting FIs have registered with the IRS than with the TIA so clients are reminded to check that both registrations have been completed.
The Advisory states that Reporting FIs will not have notification or reporting obligations regarding UK CDOT 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 CDOT must now be made in respect of those persons who are Reportable Persons for CRS purposes on the basis of their UK residence). The Draft GNs similarly state that notification and reporting by FIs pursuant to CRS requirements will satisfy compliance with UK CDOT requirements. The Alternative Reporting Regime under UK CDOT is not recognised under CRS and will not be continued.