As part of the Cayman Islands' ongoing commitment to international tax transparency, the Tax Information Authority (International Tax Compliance) (Country-By-Country Reporting) Regulations, 2017 (the "CBCR Regulations") were issued on 15 December 2017.
The CBCR Regulations essentially implement in the Cayman Islands the model legislation published pursuant to the OECD's Base Erosion and Profit Shifting Action 13 Report (Transfer Pricing Documentation and Country-by-Country Reporting). The CBCR Regulations also reflect the Cayman Islands' obligations under the OECD Multilateral Competent Authority Agreement on the Exchange of CbC Reports (the "CbC MCAA"), which close to 70 other jurisdictions have co-signed.
Pursuant to this initiative, qualifying multinational enterprises ("MNEs") are required to report annually the information set out in the model legislation for each tax jurisdiction in which they operate. This is intended to promote greater transparency for tax authorities by providing them with relevant and reliable information to conduct high-level transfer pricing risk assessments.
Accordingly, the Tax Information Authority of the Cayman Islands ("TIA") will automatically exchange country-by-country ("CbC") reports prepared by MNE Groups in the Cayman Islands with partner jurisdiction competent authorities in all jurisdictions in which the MNE Group operates, provided that the jurisdiction is a co-signatory to the CbC MCAA or a tax information exchange agreement is in place between the Cayman Islands and each relevant jurisdiction. The information reported will be subject to confidentiality restrictions compliant with the requirements of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.
Pursuant to the CBCR Regulations, any business unit or permanent establishment of an MNE Group "resident in the Cayman Islands" which are "Constituent Entities" will have registration and/or reporting requirements in the Cayman Islands. An MNE Group means, broadly, with respect to any fiscal year of the Group, a Group that has two or more enterprises for which the tax residence is in different jurisdictions or that has an enterprise that is resident for tax purposes in one jurisdiction and is subject to tax through a permanent establishment in another jurisdiction and, in both cases, that has a total consolidated group revenue of equal to or more than US$850 million during its preceding fiscal year.
"Resident in the Islands" for a Constituent Entity means:
(a) being incorporated or
established in the Cayman Islands;
(b) having a place of
effective management in the Cayman Islands; or
(c) being subject to financial supervision in the Cayman Islands.
Each Constituent Entity of a MNE Group is required to notify the TIA of its status as such, and if it is the "Ultimate Parent Entity" or "Surrogate Parent Entity" of the relevant MNE Group it will also have reporting requirements. Notification must be made no later than the last day of the reporting fiscal year of the MNE Group provided that with respect to the reporting fiscal year of the MNE Group that began during 2016, the deadline is 31 March 2018. Reporting must be made within 12 months after the last day of the reporting fiscal year of the MNE Group, provided that with respect to reporting fiscal years that began on or before 31 March 2016, the deadline is 31 March 2018.
Broadly, the Ultimate Parent Entity of an MNE is the entity in an MNE Group that owns directly or indirectly a sufficient interest in one or more Constituent Entities of the MNE Group such that it is required to prepare consolidated financial statements for the group (or would be so required if it were listed on a public stock exchange). A Surrogate Parent Entity is a Constituent Entity that, subject to certain conditions, has been appointed by the MNE Group as the sole substitute for the Ultimate Parent Entity to file CbC reports.
Pursuant to an Industry Advisory dated 20 December 2017, the TIA has published draft CbCR Guidance ("Guidance") requesting the feedback of industry by 17 January 2018. Once the Guidance has been finalised we will issue a more comprehensive client update.
Although we understand that reporting will not be made via the existing reporting portals for AEOI (e.g. FATCA or CRS), CbC report schema will soon be issued by the TIA.
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.