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
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
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
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.
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