Cayman Islands Issue OECD Common Reporting Standard Regulations
23 Oct 2015
Cayman Islands Government Industry Advisory - CRS Regulations Are in Effect
The CRS Regulations, which are the first part of two in the roll-out of the Cayman legislation, focus principally on the operative provisions and procedural obligations of CRS (which is attached as a schedule). It is anticipated that a second set of regulations will be issued before the end of the year that will contain the enforcement powers of the TIA and related penalty provisions.
The principles under the CRS Regulations are very similar to FATCA and the Cayman Islands US and UK FATCA Regulations (issued in July 2014) (collectively "FATCA"), although there are some important distinctions. For example, while US FATCA focused on citizenship and tax residency, CRS only focuses on tax residency. Given the extensive overlap with the Cayman UK FATCA regime, it is proposed that that regime be subsumed into CRS by 2017.
Capitalised terms refer to defined terms either under our prior updates on CRS and FATCA, or under the CRS Regulations.
What is CRS?
As noted in our prior update, the CRS is the OECD initiative for the global automatic exchange of information for tax purposes ("AEOI").
Currently over 90 jurisdictions, including the Cayman Islands, have committed to the implementation of the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters and over 60 jurisdictions have signed a Multilateral Competent Authority Agreement which permits participating countries to enter into agreements that, inter alia, provide for AEOI.
The United States of America has not agreed to adopt the CRS, instead continuing to rely on FATCA and its related network of intergovernmental agreements to achieve its AEOI objectives.
The Cayman Islands have agreed to the exchange of financial account information with the first group of participating jurisdictions ("Participating Jurisdictions") under CRS by September 2017. The TIA will publish a list of those Participating Jurisdictions shortly.
The obligations under the CRS Regulations apply to Reporting Financial Institutions ("Reporting FIs").
As with FATCA, the key classifications of an FI are a Depository Institution, Custodial Institution, Specified Insurance Company and an Investment Entity. The classification definitions under CRS are broadly similar to those under FATCA.
Reporting FIs are defined as FIs that are not Non-Reporting FIs. Non-Reporting FIs include:
(a) governmental entities, international organisations or central banks, save where involved in certain commercial financial activity;
(b) broad or narrow participation retirement fund, a pension fund for a governmental entity, international organisation or central bank, or a qualified credit card issuer;
(c) other entities identified as being low risk for tax evasion purposes, which have substantially similar characteristics to those listed under (a) and (b) above and are specifically defined under Cayman Islands law as Non-Reporting FIs (limited life debt investment entities are currently being considered for inclusion on this list);
(d) an exempt collective investment vehicle; and
(e) a trust whose trustee is a Reporting FI that reports all Reportable Accounts of the trust.
It should be noted the list of Non-Reporting FIs is not as extensive as it is under FATCA.
Key Obligations under the CRS Regulations
As with FATCA, the CRS Regulations require:
(a) the establishment by Reporting FIs of arrangements (i.e. policies and procedures) to identify, and apply due diligence procedures to, an Account Holder or Controlling Person that is tax resident in a Participating Jurisdiction;
(b) 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;
(c) a Reporting FI with reporting obligations to electronically notify the TIA (through the 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
(d) 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. There is no obligation under the CRS Regulations to make nil returns where there are no Reportable Accounts, although a Reporting FI can elect to do so.
The Schedule to the CRS Regulations contains the actual wording of CRS which is the account due diligence and reporting standard to which each Participating Jurisdiction has agreed. While no Account Holder self-certification form has yet been published, the Cayman Islands government has indicated that the TIA Working Group is considering the drafting of an appropriate form.
A Reportable Account shall include an account that is held by an individual or entity that is tax resident in any one or more Participating Jurisdiction(s), and, as with FATCA, there is a requirement to look through Passive NFFEs to report on their ultimate Controlling Persons.
Accordingly, it is important that a Reporting FI ensures that their systems can identify Account Holders (and their 'know your client' information) in each of the Participating Jurisdictions from 1 January 2016.
To assist with its interpretation, the OECD has published detailed commentary on CRS. It is also expected that further guidance may be published by the TIA.
What are the important dates?
Notable dates and deadlines include the following:
(a) pre-existing Accounts are those that are open on 31 December 2015, with New Accounts being those opened on or after 1 January 2016;
(b) due diligence procedures for identifying high-value pre-existing individual accounts must be completed by 31 December 2016;
(c) due diligence procedures for identifying lower-value pre-existing individual accounts and entity accounts shall be completed by 31 December 2017;
(d) each Reporting FI that has reporting obligations for the 2016 calendar year will need to register with the TIA no later than 30 April 2017; and
(e) the first report to the TIA of Reportable Accounts is required by 31 May 2017 with the related prior notification being required by 30 April 2017.
Further updates on CRS will be published when the second part of the regulations, the self-certification forms, and any related guidance are issued.
For further information or advice on the application of CRS, please speak with your usual Maples and Calder contact or any one of our FATCA / CRS experts listed above or on our dedicated FATCA / CRS webpage.
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