The Cayman Islands Department for International Tax Cooperation ("DITC") has announced the forthcoming commencement of CRS comprehensive reviews. In this guide we set out an overview of how Cayman Islands financial institutions ("FIs") can proactively prepare and mitigate enforcement risks.
Preparing for CRS Comprehensive Reviews in the Cayman Islands
The Organisation for Economic Co-operation and Development's ("OECD") Global Forum on Transparency and Exchange of Information for Tax Purposes published its Peer Review on the Automatic Exchange of Financial Account Information in November 2022. This review assessed the practical implementation of the Common Reporting Standard ("CRS") across participating jurisdictions. One of the key issues highlighted was the limited enforcement activities in certain jurisdictions to ensure the completeness and accuracy of CRS-reported data.
Considering this, CRS Peer Reviews are ongoing, with the Cayman Islands expected to receive their results in late 2025. Ensuring that information reported to the Cayman Islands Tax Information Authority ("TIA") is accurate and complete remains a critical priority. Following the introduction of CRS Enforcement Guidelines in March 2022, Cayman Islands FIs, including investment funds and their service providers, have faced increased regulatory scrutiny. This has included enquiries, warnings, breach notices, and enforcement notices issued by the TIA.
Comprehensive CRS Reviews
The DITC has recently confirmed its plans to launch comprehensive reviews to evaluate FIs' compliance with CRS obligations. These reviews, resembling audits or inspections, are expected to commence in November 2024. Now is the time for Cayman Islands FIs to reassess and strengthen their systems and procedures concerning CRS compliance.
Key focus areas for the DITC during these reviews are expected to include:
- Governance: Examining documentation that demonstrates CRS compliance, including identifying all parties and service providers involved. This ensures appropriate policies and procedures are in place for due diligence and reporting.
- Classifications: Verifying that account holders are correctly classified as reportable or non-reportable under the CRS.
- Data Quality: Reviewing controls, documentation, self-certifications, and financial statements to confirm the accuracy and completeness of reported data.
The Review Process
FIs will be selected for review based on internal risk assessments or a random sampling method. Once selected, the primary contact will receive an initiation letter outlining a request for high-level information, such as financial statements and investor lists.
During this phase, FIs may have the opportunity to voluntarily disclose any identified issues, potentially mitigating penalty exposure, although the specifics remain unclear. Following an initial review, the DITC will arrange a meeting—either onsite or virtual—with all relevant parties responsible for fulfilling CRS obligations. These could include administrators, AEOI service providers, investment managers, and directors.
At the conclusion of the review, the DITC will require remediation of any deficiencies identified and will assess whether any offences have been committed under the CRS Regulations. Reviews are expected to take approximately 4-6 months. Non-compliance or failure to respond could result in administrative penalties.
Originally published 27 December 2024
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.
