KEY TAKEAWAYS:
The two governments have also signed a new Tax Information Exchange Agreement (TIEA), which replaces the original TIEA signed in 2001. The new TIEA outlines the legal channels through which tax information will be automatically exchanged.
The IGA enables financial institutions in Cayman to directly report information to the Cayman Islands Government regarding accounts and non-participating financial entities that are substantially owned by US citizens and residents. The Cayman government will then relay this information to the US Internal Revenue Service (IRS).
Entry into the IGA will ensure that business in Cayman will continue to operate and compete effectively with its global counterparts and underlines the positive reputation of the Cayman Islands with regard to transparency and exchange of information for tax purposes.
The financial community in the Cayman Islands has welcomed the adoption of the Model 1 IGA since the intention was announced on 15 March 2013, following significant consultation with representatives of the local financial sector.
The agreements with the US were signed in London on 29 November 2013, by Cayman’s Minister of Financial Services, Wayne Panton; and the US Embassy in London’s Minister-Counselor for Economic Affairs, Julie Nutter.
“By working together to detect, deter, and discourage offshore tax abuses through increased transparency and enhanced reporting, we can help build a stronger, more stable, and accountable global financial system”, Ms Nutter said. “We look forward to collaborating with the Government of the Cayman Islands to further these objectives.”
Minister Panton noted that the FATCA Model 1 IGA is poised to become the global standard for multilateral automatic exchange of information and stated that the Government’s Tax Information Authority will implement the standardised data-reporting framework for FATCA which should help defray administrative costs for financial institutions.
The alternative option (FATCA Model 2 IGA) would require financial institutions to report directly to the IRS.
Gonzalo Jalles, CEO of industry group Cayman Finance, noted that the financial services sector was pleased to be consulted by the Government on which IGA to pursue and that the industry’s recommendation for a Model 1 IGA was accepted. “We look forward to seeing the final IGA, as industry continues to prepare for the FATCA implementation process,” he said.
FATCA requires financial institutions to register with the US Treasury and, in accordance with the IGA, agree to report certain information about their account holders. The US Treasury will open the registry portal this coming January. The signing of the US IGA follows Cayman’s signing with the UK of a FATCA-type agreement on 5 November 2013, which implements a reporting mechanism to automatically share financial information with the UK, on UK taxpayers who hold Cayman Islands accounts.
The Cayman Islands has signed 33 Tax Information Exchange Agreements with its global counterparts, with a further 17 TIEAs currently under negotiation.
The entry into the IGA will directly impact operators of Cayman domiciled financial institutions (which will include custodians, deposit taking institutions, investment funds and certain insurance companies). Such financial institutions, if they have not done so already, should urgently familiarise themselves with the due diligence and reporting obligations under the IGA, and speak to their service providers in relation to systems upgrades and other business changes which will need to be made to comply with the enhanced requirements.
Key Contacts
