The Cayman Islands And The Common Reporting Standard Issued By The Organisation For Economic Co-Operation And Development

• Published date: 30 November 2022
• Subject Matter: Finance and Banking, Tax, Financial Services, Withholding Tax
• Law Firm: Conyers
• Author: Conyers

1. INTRODUCTION

The OECD Standard for Automatic Exchange of Financial Account Information (commonly known as the Common Reporting Standard or "CRS") is a global information exchange regime developed to facilitate and standardise the automatic exchange of information ("AEOI") on residents' assets and income between participating jurisdictions on an annual basis. In its Peer Review of the AEOI on 9 November 2022, the OECD concluded that the Cayman Islands has put the necessary legal frameworks in place and is successfully exchanging information without significant timing or technical issues. The Cayman Islands was also awarded the highest possible rating for the effectiveness of its AEOI regime.

The Cayman Islands have implemented the CRS into local legislation through The Tax Information Authority (International Tax Compliance) (Common Reporting Standard) Regulations (2021 Revision) pursuant to The Tax Information Authority Act (2021 Revision) (the "TIA Act").

The Multilateral Convention on Mutual Administrative Assistance in Tax Matters (the "Convention") was extended to the Cayman Islands by the United Kingdom with effect from 1 January 2014 and permits participating countries to enter into agreements that provide for the AEOI with respect to certain tax matters. Through the operation of the Convention, the Cayman Islands, along with more than 100 other countries, have signed or committed to sign a Multilateral Competent Authority Agreement providing the legal basis through which countries can agree to the CRS.

The Cayman Islands was one of the first countries to agree to implement the AEOI under the CRS (referred to as the "Early Adopter Group"), with the first exchanges of information between competent authorities of participating jurisdictions having taken place on 30 September 2017. The United States ("U.S."), although an OECD member, is not part of the Early Adopter Group and will instead continue to rely on the provisions of the U.S. Internal Revenue Code commonly known as the Foreign Account Tax Compliance Act ("FATCA") and related intergovernmental agreements regarding the AEOI in relation to tax matters. The list of 2022 CRS reportable jurisdictions was published on 31 January 2022.

2. HOW DOES THE CRS AFFECT CAYMAN ISLANDS ENTITIES?

Similarly to FATCA, the CRS requires certain Cayman Islands reporting financial institutions ("Cayman Islands Reporting FIs") to identify the tax residency of their account holders and then to report certain information on Reportable Accounts maintained for such account holders, being both new and preexisting accounts held by individuals and entities (which includes trusts and foundations). For the CRS, certain requirements also fall on Non-Reporting Financial Institutions ("Non-Reporting FIs"). In the case of any non-individual account holder that is a "passive non-financial entity" ("Passive NFE"), a Cayman Islands Reporting FI is also required to gather information and report on the individuals that ultimately control or beneficially own such entities (i.e. "controlling persons")¹.

"Financial Institution" is a...