Cayman Islands: Proactive Guidance Needed To Help Entities Meet FATCA Deadlines

The first reporting cycle for the United States Foreign Account Tax Compliance Act (FATCA) kicked off with the 31 March deadline set by the US Internal Revenue Service's (IRS) for countries and territories such as Hong Kong that have a Model 2 Intergovernmental Agreement (IGA). Although the IRS has granted an automatic 90-day extension until 29 June for this first reporting cycle, many entities worked towards meeting the 31 March deadline.

Unable to enrol

One obstacle that clients encountered was the fact that an entity that applied for a global intermediary identification number (GIIN) in the beginning or middle of March were not able to enrol into the International Data Exchange Service (IDES) system due to the GIIN number not being recognized by the system. As confirmed with IDES technical support, this was because the GIIN has not been included in the IRS GIIN list, which is published on monthly basis.

The IDES web application is a secure managed file transfer service that is available to both financial institutions (FIs) and jost country tax authorities (HCTAs) to automatically exchange FATCA data with the US.

While several countries were proactive in setting up or adapting proprietary systems to accommodate FATCA reporting, or issued guidance to assist their FIs in complying with IRS requirements, many jurisdictions – including China, which has agreed in substance a Model 1 IGA – do not yet have systems or guidance in place. However, Model 1 countries must report to the IRS by 30 September.

Direct IDES reporting in Singapore

Singapore is not providing an online service or separate portal for manual input and reporting of FATCA data. Therefore, Singapore FIs have to transmit their FATCA reporting data in a specifically formatted XML data file directly to the IDES, and the Inland Revenue Authority of Singapore must approve the data before they are released to the IRS. FIs should be aware that XML data file reporting via IDES requires taking certain steps, including acquiring a digital certificate from an IRS-approved certificate authority, enrolling with IDES and preparing the FATCA reporting package for transmission. This process can take some time and requires IT knowledge, so it is important to get started immediately and not wait until the due date. Singapore's deadline is 31 July (extended from 31 May).

Nil returns

Other jurisdictions are using systems already in place. Ireland uses its Revenue On-Line Service which provides customers with a quick and secure facility to file tax returns, pay tax liabilities and access their tax details. However, the user also must obtain an approved digital certificate.

Mauritius provides MRA e-Services, which requires the FI to register with the Mauritius Revenue Authority (MRA). The MRA will provide a username and password upon registration and facilitate the exchange of tax information.

In Luxembourg the data transfer is executed via a secure channel using the transmitters Centel SA (via Sofie) or Fundsquare (via E-File). Both transmitters also require enrolment as well as obtaining a certificate.

All three jurisdictions require FIs to submit nil returns.

Automatic exchanges in Caymans

The Cayman Islands established a completely new system, the Cayman Automatic Exchange of Information Portal, for reporting financial institutions to submit their notification and reporting to the local Tax Information Authority (TIA).

Cayman FIs were required to provide notification to the TIA by 30 April. Notification should have been filed, even where the FI would be otherwise not required to submit a nil return given that filing a nil return is no longer mandatory in the Cayman Islands.

The notification should include an attachment in PDF format, on a standard business form such as a letterhead, identifying and authorizing a natural person, e.g. a named employee of a third-party service provider, as the principal point of contact for that FI.

Filling in the form

The form should be signed by a senior person, e.g. by a director or an officer responsible for FATCA. Information required on the form includes the FI's name, categorization in accordance with the US and UK IGA, GIIN, full name, address and designation of the authorized natural person.

As for FATCA, Cayman FIs have to comply with the 31 May deadline for electronic reporting via the portal to the Department of International Tax Compliance for each reportable account. XML is the prescribed format for the report, consistent with currently published schemas by the IRS for FATCA and the OECD for the common reporting standard.

BVI's reporting system

The British Virgin Islands International Tax Authority (BVI ITA) launched its Financial Account Reporting System for FATCA in mid-April, after delaying the reporting deadline for its FIs from 31 May to 30 June.

The system appears to be similar to that of the Cayman Islands, and it requires prior enrolment by FIs. The enrolment must be approved by the BVI ITA before access is given.

The enrolment process requires that FIs submit a letter signed by a director of the company identifying the person responsible for FATCA compliance – who must be a director of the FI – and a scanned copy of the primary user of the system's passport.

A way of life

It is becoming clear that jurisdictions still lagging on FATCA reporting systems or policies will eventually have to fall in line as more and more reporting deadlines become due throughout the year and FATCA becomes a way of life.

Originally published by China Business Law Journal.

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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