On 13 August 2013 the Cayman Islands Government ('CIG')
announced that it had concluded negotiations with the United States
of America on a Model Form 1 Inter Governmental Agreement
('IGA'), and that the official signing will be held as soon
as possible. The CIG also announced that it has agreed a new
tax information exchange agreement ('TIEA') with the
US. The move was welcomed by representatives from the Cayman
Islands' financial services industry as providing further
evidence of the CIG's continuing commitment to maintain the
Islands' reputation as a well regulated and transparent
international financial centre ('IFC').
By signing a Model Form 1 IGA with the US, the CIG has agreed to
the automatic exchange of information ('AEOI') under the
US' Foreign Account Tax Compliance Act ('FATCA'), which
will streamline the reporting of information to the US Internal
Revenue Service ('IRS'). Under FATCA, all Foreign
Financial Institutions ('FFI's) to disclose information on
any financial accounts that they hold which either belong to US
taxpayers or to foreign entities which are substantially owned by
US taxpayers. Without the IGA 1 each FFI (which includes both
investment funds and managers) would have to collect and transmit
data to the IRS on their own. With the AEOI in place, the CIG
will create a standardised framework for Cayman-based FFIs to
report data to it, which it will then relay to the IRS, via the
Cayman's Tax Information Authority ('CTIA'), the
Islands' only channel for the provision of tax-related
information to other governments.
The creation of a standard mechanism for reporting will help
reduce the administrative costs of FFIs based in the Islands, and
the mechanism created to comply with FATCA requirements will also
serve as a template for future AEOIs with other countries.
Cayman's Minister for Financial Services commented that the
global community is moving in the direction of one AEOI standard
and that these new agreements with the US "demonstrate
Cayman's commitment to engage in globally accepted tax and
The original TIEA with the US was signed back in 2001, and the
U.S. Treasury's Robert Stack praised the CIG, which
"...consistently demonstrates leadership in transparency
matters through its global engagement, including its work on both
the Steering Group and the Peer Review Group of the OECD Global
Forum on Transparency and Exchange of Information for Tax
What happens next?
Both sides have initialled the agreements to confirm their
intention to sign, but the texts will not be made public until
after the official signing. Once the agreement has been
signed then the Cayman Islands will be added to the list on the IRS
website of jurisdictions which will be treated as having an IGA in
effect, even if the IGA has still has not entered into force as of
1 July 2014. FFIs registering with the IRS from the Cayman
Islands will be registered as "deemed compliant".
Following the signing with the United States, the CIG
will have further discussions with the UK's
HM Treasury in order to finalise the terms of the UK
Model 1 IGA FATCA agreement.
Although the announcement that the Cayman Islands would enter
into a Model 1 IGA was made back in March, the fact that
negotiations are concluded and agreements initialled and ready to
sign will give the Cayman Islands financial services industry
confidence that, once again, the jurisdiction's government has
shown its commitment to keeping the burden of financial regulation
in proportion to its benefit.
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.
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