An intergovernmental agreement ("IGA") on international tax compliance between the United Kingdom and the Cayman Islands intended to improve international tax compliance was signed on 5 November 2013. Under the IGA, certain financial institutions in the Cayman Islands will be required to report information on certain accounts, equities and debt interests that are substantially owned by persons with UK tax reporting obligations to the Cayman Islands Government. The Government will then share that information with the UK.
Who must comply?
The IGA imposes obligations on most Cayman Islands financial institutions. "Financial Institution" is broadly defined. It includes not only those entities undertaking banking and depository business but also investment entities (including many funds and fund managers) and insurance companies that issue annuities or cash value insurance contracts.
Are there any exemptions?
Certain entities that may otherwise fall into the definition of financial institution are exempted. These include the government of the Cayman Islands, certain international organisations headquartered in the Cayman Islands, some retirement funds, certain pension funds, and investment funds wholly owned by other exempted entities or owners. In addition, local credit unions, financial institutions with only low value accounts, qualified credit card issuers, certain trusts that have Reporting Cayman Islands Financial Institutions as trustees, and some investment entities, advisers and managers are exempt. The exemptions are spelled out in Annex II of the IGA and are too detailed to be described in this brief alert. Interested persons are invited to contact any member of the Appleby corporate and commercial team for more information.
Which accounts are impacted by the IGA?
The IGA requires that a Reporting Cayman Islands Financial Institution disclose to the Government certain particulars relating to any "United Kingdom Reportable Account". A UK Reportable Account is a "Financial Account" that is held or controlled by a Specified United Kingdom Person, being a person or entity resident in the UK for tax purposes (with some specified exemptions). A "Financial Account" includes equity or debt interests (other than interests that are regularly traded on an established securities market) in any entity that conducts as a business (or is managed by an entity that conducts as a business) one or more of the following activities or operations on behalf of a customer:
- trading in money market instruments, foreign exchange, exchange, interest rate and index instruments; transferable securities; or commodities futures trading;
- individual and collective portfolio management; or
- otherwise investing, administering or managing funds or money on behalf of other persons.
What information must be obtained and exchanged?
With respect to each UK Reportable Account, the Reporting Cayman Islands Financial Institution must gather and provide:
- the name, address, date of birth and, where available, the UK National Insurance Number of the account holder (if an individual) or, where the account holder is an entity which has been determined to have one or more controlling persons who is a Specified UK Person, the same particulars of such individual;
- the relevant account number;
- the name of the reporting financial institution and, where available, the institution's FATCA Global Intermediary Identification Number;
- the account balance or value;
- in the case of a custodial account, information on interest, dividends and any proceeds from the sale or redemption of property;
- in the case of a depository account, information on interest; and
- in any other case, the total gross amount paid or credited to the account holder with respect to the account (again, broadly defined to include equities and debt interests in an Investment Entity), including the aggregate amount of any redemption payments made.
The IGA contains detailed provisions on the due diligence required of financial institutions, as well as guidance on how to deal with existing accounts.
When will the information be exchanged?
The information required will be exchanged with the UK annually and on an automatic basis. The exchange of information must be performed within 9 months after the end of the calendar year to which the information relates. Detailed provisions set out the time lines required for reporting on pre-existing accounts.
How will the information be provided?
The parties to the IGA are working together on separate and detailed procedures for the exchange of information in an agreed format.
What's next?
The UK expects to enter into similar IGAs with other territories and jurisdictions. As the first to enter into such an agreement, the Cayman Islands will be granted the benefit of any more favourable terms afforded to another jurisdiction under an equivalent IGA.
Local legislation will need to be implemented in order to give effect to the IGA. At the moment, it is uncertain when this legislation will be brought forward. Appleby will provide regular updates to our clients as matters progress.
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.
