The US-Cayman Islands Inter-Governmental Agreement (the "IGA") was signed and published on 29 November 2013, and the much anticipated exemption for CLO Issuers was regrettably not part of Annex II of the IGA. Whilst we are still awaiting the publication of the terms of the Cayman Islands domestic legislation that will implement the IGA (which we expect to be forthcoming in December 2013 or January 2014), FATCA's implementation is now on a tight timeline, and there are steps that must be taken by each CLO Issuer and its Board of Directors, in short order.
Non-compliance with FATCA by a CLO Issuer will have adverse consequences as set out in the risk factors in the Offering Memoranda of many CLOs, potentially impacting the returns on the deal. Accordingly, each CLO Issuer acting through its Board of Directors, and specifically through the newly appointed role of the FATCA Responsible Officer (the "FRO"), must take the steps prescribed in the Hire Act and in the IGA. There is no time to waste.
There is a limited period of time for CLO Issuers, in conjunction with the related Cayman Administrator, Trustee and Collateral Manager to get their houses in order.
Each CLO Issuer needs to file on the IRS Portal in order to obtain its Global Intermediary Identification Number (GIIN). The deadline for this filing is 31 December 2014. However, those entities registered on or before 25 April 2014 will have the advantage of being on the first list of GIIN numbers that will be released on 30 June 2014, which will be of comfort to contractual counterparties.
2. Compliance/Due Diligence
Due diligence needs to be undertaken on behalf of each CLO Issuer, acting through its Directors and the FRO, as to the identity of its accountholders and investors, to determine US indicia. This process will be set out in a pre-established Compliance Manual, and will involve, inter alia, a review of the Minute Book of the Company as well as its books and records (including the Register of Members). This will also involve considerable coordination with the Trustee, in relation to their records which will be forwarded to the Cayman Administrator. Ultimately, investors will need to be classified in accordance with their US indicia.
3. Reporting to the Cayman Islands Tax Authority
The Board of Directors of each CLO Issuer will need to pass a resolution to appoint the FRO. This new and distinct role of the FRO is a specialised function, and that individual will also be involved in the handling of reporting that relates to the Cayman Islands-United Kingdom Inter-Governmental Agreement, together with any other country that may in due course require similar tax disclosures. The role of the FRO, in addition to leading the compliance set out above, will be to take responsibility for and to report to the Cayman Islands Tax Information Authority (the TIA) annually. This report will relate to the classification of the CLO Issuer's investors, after completion of the necessary compliance work to ensure that it is capable of taking responsibility for such reporting.
Appleby Trust, as Corporate Administrator for over 120 CLOs set up since 2010, have taken significant steps over the last year in the preparation of its FATCA Implementation Programme. Appleby Trust has instructed external auditors to produce an independently reviewed FATCA Compliance Manual, in addition to enhancing its FATCA Compliance team with significant hires. In consultation with Trustees and Collateral Managers, we anticipate adding an FRO to the Board of Directors of each CLO Issuer, in order that the above steps can be carried out as efficiently and as expeditiously as possible.
Going forward, each CLO Manager in conjunction with the relevant Underwriter, will need to develop new FATCA-compliant on-boarding procedures to take effect prior to 1 July 2014.
Appleby and Appleby Trust will advise further in relation to FATCA and its implementation as soon as the Cayman Islands domestic legislation is passed into law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.