Cayman Islands: UK FATCA And Cayman Funds

As noted in our prior update of 19 November 2013, the Cayman Islands government signed an intergovernmental agreement with the United Kingdom (the "UK IGA") on 5 November 2013.  The UK IGA provides a framework for the implementation in the Cayman Islands of a UK tax residents reporting regime ("UK FATCA") which is similar in scope to the US Foreign Account Tax Compliance Act ("US FATCA").  In that respect, the structure and scope of the UK IGA is very similar to the intergovernmental agreement which the Cayman Islands government signed with the US government (the "US IGA") to implement US FATCA.  Regulations to give effect to UK FATCA in Cayman Islands law were passed on 4 July 2014. 

In our previous FATCA updates, we examined the proposed requirements under the US IGA relating to: (i) entity classification for Cayman Islands based Investment Entities; (ii) GIIN registration for a Reporting Financial Institution ("FI") and the concept of responsible officers; and (iii) due diligence obligations on Cayman Islands investment funds that are Reporting FIs. 

Each of these updates can be viewed through the following links:  

US FATCA and Cayman Funds: Entity Classification 

US FATCA and Cayman Funds: GIIN Registration 

US FATCA and Cayman Funds: Due Diligence 

This update follows our previous updates which should be read together, especially given the similarity between the UK IGA and US IGA.  In addition, capitalised terms not otherwise defined herein have the same meaning given to them in our prior updates. 

Points to note on the UK IGA (and how they differ from the US IGA) are as follows: 

UK IGA - Substantive Agreement

(a)       While the definition of "Cayman Islands Financial Institution" in the UK IGA is very similar to the definition in the US IGA, the UK IGA uses the term "resident in the Cayman Islands" whereas the US IGA uses the term "organised in the Cayman Islands".  It is not currently understood how this will be implemented in practice as the Cayman Islands does not have a legal concept of "residency" or "tax residency". 

(b)       The definition of "Specified United Kingdom Person" in the UK IGA refers to persons or entities resident in the UK for tax purposes whereas the US IGA includes US citizenship as a factor.  This accounts for the fact that the US taxes its citizens irrespective of residency whereas the UK taxes by reference to residency. 

(c)       Under Article 2 of the UK IGA, the information required to be collected and exchanged is largely the same as the requirements under the US IGA, except that a UK national insurance number is required instead of a US TIN, and for a Reporting FI which has registered with the IRS its GIIN should be supplied as part of the reporting. 

(d)       Under Article 3 of the UK IGA, the information exchange deadline remains the same at nine months after the relevant year end, except that under the UK IGA the first such exchange does not need to occur until the end of September 2016 (one year later than the US IGA). 

(e)       The UK IGA has no equivalent of Article 4 of the US IGA.  In other words, there are no requirements relating to Non-participating FIs, there is no requirement to register for a GIIN equivalent, there is no concept of recalcitrant account holder, and there is no concept of branches/related entities that are Non-participating Financial Institutions. 

(f)        While the UK IGA includes a provision which allows HM Revenue & Customs to notify the TIA of significant non-compliance by a Reporting FI, this does not lead to the Reporting FI being treated as a Non-participating FI.  As the UK IGA is not part of a withholding tax regime, there is no withholding tax that will arise as a result of being regarded as significantly non-compliant although this might be an offence under Cayman law resulting in enforcement action by the TIA. 

(g)       Under the UK IGA, there is no provision that anticipates future discussion between the governments on "foreign passthru payments". 

UK IGA – Annex I

(a)       The rules in Annex I of the UK IGA are largely identical to Annex I of the US IGA including as to relevant dates for determining whether an account is pre-existing or not, and also as to the dollar thresholds for determining account status for due diligence standards. It is noteworthy that the extension of time for the implementation of new entity accounts procedures under the US FATCA has not been reflected in UK FATCA. 

(b)       "UK indicia" means evidence of UK tax residency, a UK address, a standing order to remit funds to the UK, a power of attorney in favour of a person with a UK address, or an "in care of" or "hold mail" address in the UK.

(c)       As with the US IGA, self-certification will play an important role in rebutting presumptions of tax residency where there are UK indicia. 

(d)       For Pre-existing Entity Accounts, there is no requirement to identify Non-participating FIs as the concept of Non-participating FI is not a concept in the UK IGA. 

(e)       As there is no functional equivalent of a GIIN, there is no requirement to identify GIINs or equivalent for investors as part of the due diligence procedures. 

UK IGA – Annex II 

(a)       The categories of Non-Reporting Investment Entity in Annex II are largely similar to Annex II of the US IGA with a few subtle differences. 

(b)       Trustee Documented Trust.  The trustee must be a Reporting Cayman Islands FI to qualify under the UK IGA.  Under the US IGA, the trustee can be a non-Cayman FI (subject to certain exceptions). 

(c)       Sponsored Investment Entity.  The sponsoring entity must be a Cayman Islands FI and must notify the Cayman TIA of its status as a sponsoring entity to qualify.  Under the US IGA, the sponsoring entity can be any entity as long as it is registered as a sponsoring entity with the IRS and has a corresponding sponsoring entity GIIN.  In addition, if a UK Reportable Account is detected, there is no requirement to register the sponsored investment entity because of the absence of a registration system (unlike with the US IGA).  Accordingly, this category is practically identical to Sponsored Closely Held Investment Vehicle (see further below).

(d)       Sponsored Controlled Foreign Corporation (CFC).  There is no provision in the UK IGA equivalent to that in the US IGA. 

(e)       Sponsored Closely Held Investment Vehicle.  The sponsoring entity must be a Cayman Islands FI and must notify the Cayman TIA of its status as a sponsoring entity to qualify.  Under the US IGA, the sponsoring entity can be any Reporting US FI, Reporting Model 1 FI or Participating FI as long as it is registered as a sponsoring entity with the IRS and has a corresponding sponsoring entity GIIN. 

(f)        Investment Advisers and Investment Managers.  This is substantively the same as the US IGA. 

(g)       Collective Investment Vehicle.  While this is similar to the provision in the US IGA, notably the list of investors who qualify to invest excludes UK specific equivalents of (i) US Persons who are not Specified US Persons, and (ii) FIs that are not Non-Participating FIs. 

UK IGA – Annex III

The UK IGA also includes an alternative reporting regime which is set out in Annex III.  We do not examine the regime in this update since it is not anticipated this will be used by the investment funds industry as it relates to persons who are non-domiciled in the UK, and both the Reporting Cayman FI and the relevant Specified UK Person must elect to apply the regime.  

Action Points

(a)       Verification procedures need to be in place to deal with any new investor accounts from 1 July 2014.  The verification requirements apply immediately to these accounts so procedures should be designed to identify UK Reportable Accounts as well as US Reportable Accounts. 

(b)       For pre-existing accounts, a review of account balances ought to be conducted to ascertain how soon remediation needs to be undertaken and the extent of that remediation. 

If clients require legal advice or have any concerns about FATCA and the UK IGA, Maples and Calder has leading expertise on the relevant provisions having established a FATCA team which has worked closely with the Cayman Islands government over the past two years.  MaplesFS also provides client focused solutions to FATCA.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Martin Livingston
Tim Frawley
Alasdair Robertson
Richard Grasby
Similar Articles
Relevancy Powered by MondaqAI
Conyers Dill & Pearman
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Conyers Dill & Pearman
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions