Tax Information Exchange Agreements ("TIEAs") provide for the exchange of information, on request, in respect of specific criminal or civil tax investigations.1
Since 2001 the Cayman Islands has signed over 30 bilateral agreements and arrangements of this kind which serve to promote the jurisdiction as an internationally co-operative jurisdiction on tax related matters and have earned the Cayman Islands a well-deserved place on the OECD "White list".
The Tax Information Authority Law2
The Tax Information Authority Law (2013 Revision) ("The Law" or "TIAL") is the principal legislation which enables the provision of tax information to other countries.3 The Law was first introduced in 2005. It has undergone several revisions and the current version is dated 2013.
The TIEAs entered into between the Cayman Islands and foreign states are scheduled in the latest revision of the Law. These agreements are modelled on the format created in conjunction with the OECD Global Forum on Taxation.
Prior to the Law, the Cayman Islands had already entered into a TIEA with the United States (in 2001). This provided for information exchange relating to criminal tax matters from 2004 onwards and civil matters from 2006. It did not require a dual criminality test. The Cayman/US TIEA was updated in 2013 further to the Cayman US Intergovernmental agreement in relation to the US Foreign Account Tax Compliance Act ("FATCA") which is beyond the scope of this paper and for which further guidance can be found in a separate Samson & McGrath client advisory. The Cayman Islands also maintains a Double Taxation Agreement with the United Kingdom.
Tax Information Authority
The Cayman Islands Tax Information Authority ("the Authority") is part of the Ministry of Financial Services, Commerce and Environment. It is designated by the Law as the competent authority for international co-operation on matters involving the provision of tax related information.
"The overriding objective of the Tax Information Authority is to carry out the lawful and effective implementation of Cayman's international cooperation arrangements in tax matters."4
The Authority has responsibility in the areas of:
- Tax information assistance under the Law; and
- Reporting of savings income information under the reporting of Savings Income Information (European Union) Law.
These responsibilities are governed by separate statutory schemes and this paper in concerned with the former activities only.
The Authorities statutory functions include5:
- Executing requests for tax information;
- Ensuring compliance with the Law and international agreements for the provision of tax information;
- Making costs determinations in relation to requests; and
- Entering into operating arrangements with, or issuing operating procedures to, counterpart competent authorities.6
Scope of assistance7
The Law provides for assistance generally in relation to criminal and non-criminal tax investigations but specifically provides for:
- The taking of testimony;
- The obtaining of information;
- Service of documents;
- Executing searches and seizures; and
- Interview and examination, by consent, of taxpayers of the requesting country who are in the Cayman Islands
The bilateral agreements and the schedule in relation to each country specify taxes covered and operative dates.8
"Information" means any fact, statement, document or record in whatever form;
and includes -
- any fact, statement, document or record held by banks, other financial institutions, or any persons, including nominees and trustees, acting in an agency or fiduciary capacity; and
- any fact, statement, document or record regarding the
beneficial ownership of companies, partnerships and other persons,
- in the case of collective investment funds, information on shares, units and other interests; and
- in the case of trusts, information on settlors, trustees and beneficiaries
"Taxation matters" includes matters relating to the collection, calculation or assessment of a tax referred to in a scheduled Agreement or specified in a Schedule to the Law under section 3(6)(a)(iii) or matters incidental thereto.
"Proceedings" means civil or criminal proceedings;
Procedure for making a request: Standard format9
All requests must be made in English and in the following standard format:
- The nature of the request
- New or supplementary request;
- Criminal or non-criminal tax matter; and
- Whether seeking information for proceedings or related investigations
- The purpose of the request
- Whether it is for testimony, information, permission to interview and examine in the Cayman Islands or whether for ancillary purposes
- The identity of the person who is the subject of the request, the taxable periods to which the request relates and the tax purpose for which any information is sought
- Detailed statement of basis of request
- Full specification of the information being sought by the request
- Statement of reasonable grounds for believing the information requested is present in the Cayman Islands or is in the possession or control of a person subject to the jurisdiction of the Cayman Islands.
- The name and address of the person believed to be in possession of control of the information
- An undertaking that all information provided in relation to the request will be kept confidential
- A declaration that the request conforms to the law and administrative practice of the requesting jurisdiction and that the information would be obtainable by that jurisdiction under its laws in similar circumstances for its own tax purposes.
- Confirmation that all available legal channels have been pursued in its own territory
- An undertaking not to disclose the requested information to any third party without consent of the competent authority.
Declining a request
The Authority has the power to decline a request for information if the criteria above is not adhered to, for example, where the requesting party would not be able to obtain such information in its own country.
Furthermore, if the requested information may divulge a trade or business secret, the Authority may refuse to supply the information. In addition, the Authority can decline information where such information is in the form of communications between client and attorney and is therefore subject to legal professional privilege.
All information provided and received by the competent authority, including requests and other formal notices and documents, or any other communications relating to request, are confidential to the respective competent authorities.
The competent authority may impose conditions of confidentiality on any person who is notified of the request or involved in its execution, and, in requests involving criminal proceedings, disclosure is prohibited by law. Breach of such confidentiality attracts criminal penalties.
The competent authority can approve the onward transmission or further use of information or evidence provided in response to a request by the competent authority of the requesting country.
Confidentiality may not be claimed against the production of information to the competent authority and no civil or criminal liability attaches to the person providing the information in respect of the production of information to the competent authority.
Execution of request
Once a request is determined by the Authority to be in compliance with the Law and relevant TIA, the Authority is obliged to execute the request in accordance with the Law and any such Agreement.
The Authority has the power to seek additional information to assist in executing the request, to certify requests as compliant and has general power to deal with all information brought to it in accordance with the Law.
Depending on the nature of the request, the Authority may issue a formal notice to produce information or make an application to a Judge for an order to produce information. In cases requesting the taking of testimony, the Law requests the Authority to apply to a Judge and for the Judge to receive the testimony of the witness.
Obligation of confidentiality or other restrictions on disclosure do not prevail against a request for information. Legal privilege does apply.
There exists a tipping off offence in the case of requests in criminal tax matters.
Where a Judge has made an order to produce information, the Authority has power to seek further orders to allow a constable access to premises where the information may be held.
MH Investments v the Cayman Islands Tax Information Authority11
This case concerned a legal challenge to a decision of the Authority to provide documents in response to requests from the Australian Tax Office. The decision provides guidance on how the Authority should treat requests for information, the application of the Law (including its interaction with the Confidential Relationships (Preservation) Law ("CRPL")) and serves as a reminder that the decisions of the Authority may be judicially reviewed by the Cayman Islands Grand Court.
The litigation concerned a TIEA which the Cayman Islands and Australia entered into and which came into force on 14 February 2011. The TIEA allowed for the sharing of information in respect of taxable periods commencing 1 July 2010.
Whilst a detailed examination of the decision is beyond the scope of this paper, it should be noted that the applicants applied to the Grand Court seeking judicial review of the actions of the Authority and seeking declarations that the Authority had failed to observe the requirements of the Law and had acted unlawfully. In short, the Court granted the plaintiff's application, quashed the decision of the Authority and ordered it to revoke its consent to the Australian Authority and ordered the return of the unlawfully provided information.
Striking the right balance
Notwithstanding the internationally recognized measures which have been put in place since 2001, the Cayman Islands recognizes that investors and financial institutions are entitled to privacy in the conduct of their private affairs. With this in mind, the Islands continue to strike a careful balance between legitimate client confidentiality and reasonable international transparency.
Fishing expeditions are not permitted and information is only exchanged in response to specific requests which are in compliance with the strict statutory criteria. Various protections and safeguards are built into the Law and these standards will be enforced by the Cayman Islands Grand Court.
The Law will also be interpreted and applied in accordance with the Cayman Islands Bill of Rights which came into force on 6 November 2012. Such rights include respect for private and family life in similar terms to the equivalent articles of the ECHR and UK Human Rights Act thereby placing necessary and proportionate limits upon disclosure.12
List of bilateral agreements
A full list of agreements can be accessed on the TIA website: www.tia.gov.ky
2. TIAL (2013 Revision) Section 4
3. Guide to the Tax Information Authority Law (as revised)
4. Tax Information Authority, Publication Scheme, 2009.
5. TIAL (2013 Revision) Section 5
7. TIAL (2013 Revision) Section 9
8. Guide to TIAL March 2009
9. TIAL (2013 Revision) Section 11
10. TIAL (2013 Revision) Section 13
11. Cause No G391/2012, Quin J, 13.9.2013
12. See MH Investments (ibid)
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.